As the end of 2022 approaches, you, like “Mike,” may be considering your marketing plans for 2023.
Mike is the head of marketing at a bank headquartered in Berkshire County. Mike tells me he wants to take advantage of shifts in the industry, nationally and locally. Nationally, bank and credit union customers are shopping more aggressively for mortgages outside of where they hold their checking accounts.
Locally, bank customers are comparing the interest rate paid on their deposits. My company, Berkshire Money Management, has seen interest from our clients who want to move cash from low-paying bank savings accounts to the Schwab Value Advantage Money Fund, paying more than 3.7 percent.
Shifts are happening in banking, and Mike wants to strike while the iron is hot. Mike is adamant that every banking relationship in and around Berkshire County is up for grabs in 2023. His bank’s marketing extends into surrounding counties; Mike believes that to be his target market for next year.
I argued that this was his total addressable market rather than his target market. There’s a difference. And I needed to explain that difference to Mike before he launched a seven-figure marketing campaign that could prove to be ineffective because it tried to reach to everyone. I told Mike that speaking to the potential customers with the most vulnerable banking relationships would be more effective.
Terms like the “total addressable market” (TAM) and “target market” may surface in your 2023 marketing planning, and you could be tempted to use them interchangeably. Your TAM and your target market are related but slightly different. Treating them as synonyms may be a mistake and result in wasted advertising spending.
Your TAM is the total market size for your product or service over the long term. For example, if you sell left-handed spatulas, your TAM would be anyone who is left-handed. Or, for Mike, it’s banking customers in Berkshire County and adjacent counties.
Your target market is the customer you plan to focus on in the short to medium term. Using the left-handed spatula example, you may decide to launch your utensil to restaurants, so you choose to target professional chefs who happen to be left-handed — a subsegment within your TAM.
For Mike, the target market is non-first-time homebuyers and post-retirement customers currently residing in Berkshire County. Non-first-time homebuyers don’t qualify for certain loan advantages, which means Mike’s bank can add more value. Regarding deposit rates, post-retirement customers have a higher propensity to save their money instead of investing it. Mike’s target market should be this subset of his TAM.
Would a seven-figure marketing spend create brand awareness to the TAM if Mike used the shotgun approach? Absolutely. However, he is likelier to generate action from prospective customers by focusing on his target market. And simultaneously, brand awareness will occur. The trick to writing an effective marketing plan is to pick a target market within your TAM that is large enough to meet your medium-term sales goals (i.e., the next year or two) but not so large that your call-to-action will become diluted.
Focusing on your target market makes your company more valuable
In 2012, Ryan started a software company in Chicago. The software helped landlords manage and communicate with their tenants more effectively.
Ryan defined his TAM as landlords in the United States and started marketing to all of them. Large commercial landlords have different requirements than small real estate investors, but Ryan treated them equally.
By 2016, the company had grown to $1 million in revenue, but Ryan’s company was experiencing high client attrition, causing growth to plateau. Determined to get the company back on a growth track, Ryan transformed his strategy and began to market to a subset of his TAM defined as do-it-yourself landlords managing fewer than 10 units.
Choosing a segment of his TAM helped Ryan turn the company around. Narrowing the company’s focus allowed the product team to simplify its features for smaller-scale landlords. With a purpose-built product for those specific real estate investors, retention improved. The tighter definition of their market also led to better messaging that resonated with their target leading to improved response rates.
Between 2016 and 2020, Ryan’s company grew revenue from $1 million to $7 million. That’s when their expansion caught the attention of Realtor.com, which acquired the company for approximately five times revenue.
Ideal client profile
My company, Berkshire Money Management, has a couple of ideal client profiles for local and national clients. Here’s an example:
“A Berkshire County couple in their early 60s who plan to retire in the next five years, have $750,000 saved in retirement and other accounts and have paid off their house. They want help not just with investing but understanding how they’ll get an income from their retirement and how not to run out of money in retirement. They have many questions about Social Security, Medicare, how they’ll get an income from their investments, and how to protect their assets from unjust taxes or seizure. They may work in the local health care system and have a small business they intend to sell.”
These profiles allow our marketing team to speak to the people who could most benefit from our services and with whom we enjoy working.
Why your TAM is still important?
You may wonder why your TAM still matters if the secret to better marketing is narrowing your target to a segment within it. Your TAM remains important as you talk to investors or potential acquirers. Acquirers and investors place a premium on growth, so they will want to understand the total market size available for your product, even though you may not intend to target them in the short to medium term.
Your TAM is critical to the long-term value of your company. Tightening your target market in the short term is the key to meeting your goals for the coming year.
This article first appeared in the Berkshire Eagle on December 2, 2022.