13
Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado
Addressable Market
The overall market does not necessarily represent your opportunity. Let’s say
you have designed a new road bicycle that is light weight and sells for $2,000.
The market opportunity for this is not the entire bicycle market. You will never be
able to capture a share of the market for kid’s bicycles, cruisers, or mountain
bikes. Therefore, the addressable market is considerably less than the overall
market and is where you will focus your attention.
Segmentation
Next, identify different groups of customers who may be willing to buy your
product/service to satisfy a need. A market segment is a subgroup of people or
organizations sharing one or more characteristics that cause them to have similar
product/service needs. Segmenting the market is the basis for deciding on your
initial and future markets, product or service offering and marketing strategy. In
this section you should address all of the potential markets, not just the one you
plan to enter first. The following are different ways to segment the market:
• Groups of customers: demographics, psychographics, e.g. baby boomers,
grandparents, environmentalists, conservatives, etc.
• Sectors: industrial (petroleum, construction, etc.), financial (retail banks,
mortgage lenders, insurance, etc.), government (state, military, homeland
security, etc.)
• Geography: local regional, national, international
• Product/service features: speed, performance, fragrance, etc.
• Benefits: enhance image, trend setter, improve sex life, save money, etc.
• Prices: premium, lowest cost, standard mark-up, etc.
• Distribution channel: retail, internet, door-to-door, etc.
Continuing with the bicycle example, potential segments would include athletic
baby boomers with incomes greater than $150,000; first time cyclists who want to
enter competitions; and courier services in large cities; and bicycle tour
companies.
As with the total market, for each segment determine the market size (numbers
of customers, units sold or transactions and dollar value of purchases), growth
(historic and future) and trends.
Entry Point
Based on the segmentation that you did above, now describe the specific market
segment that represents your best point of entry. Provide evidence that explains
why this segment is attractive.
• One of the most difficult questions that you must answer is what problem
are you solving for your target market, i.e. why is there a need for your
product/service?