An example that highlights the benefits of using HVM (Highest Value Market) over TAM (Total Addressable Market), SAM (Serviceable Available Market), and SOM (Serviceable Obtainable Market) is a regional B2B cosmetics and materials company in the Middle East that was facing tough competition from international players. Initially, the company had estimated TAM, SAM, and SOM based on macro estimates and assumptions such as price competitiveness, local presence, and long-term relationships with local partners.
However, after experiencing irregular growth and losses for several years, the company decided to invest in understanding why its revenue forecast and business strategy were falling short. Through this process, the company discovered several essential insights.
What did they learn?
First, the company had overestimated its TAM by almost eight times. They had assumed that everyone was buying based on price, but they found that their products were often bundled and discounted by their channel partners, meaning that only some were buying based on price alone.
Second, the company realized that being a local vendor did not automatically give them an advantage over their international competitors. Many of their international competitors had better recognition and had operated in the Middle East longer than they had.
Third, the company learned that their essential buyers were frequently not the people that salespeople interacted with, and they had little visibility into their channel partners’ sales processes. By understanding how its customers bought their products, the company gained clarity on its customer base, which ultimately helped them adjust its strategy and execution.
Ultimately, the company found that its current strategy's valuable and winnable markets were distinct. While there were valuable customers that they aspired to, the ones they were winning with were frequently unprofitable when considering the costs of unsuccessfully pursuing the valuable ones. Through this systemic process, the leadership could adjust their strategy and execution in time to break even. By discontinuing expensive direct sales to targets that ultimately would not consider them, the company established a reduced number of strategic channel partnerships that drove profitable revenue.
Overall, this example illustrates the importance of using HVM rather than relying solely on TAM, SAM, and SOM estimates. By taking a customer-centric approach and understanding how its customers bought their products, the company adjusted its strategy and execution to achieve profitability.
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