Guiding Light in Economic Uncertainty

Have you checked in with TAM and SAM lately?

The total addressable market (TAM) measures the full potential revenue a company can generate from its product or service. At the same time (SAM) helps you identify the TAM segment that your company should target with its products and services within a geographical area that your company covers.

TAM and SAM play a critical role in your business and should be considered fundamental tools in navigating your business operations and strategic go-to-market plans.

When considering growth opportunities, the TAM can be a valuable tool in helping you set realistic revenue goals and benchmark the company's performance against its competitors.

In today's economic environment, there are many factors to consider as headwinds that your business will need to navigate against. These economic factors, such as the shift in the money supply, are key indicators that should be focused on and considered within your TAM and SAM models.

S&P Global, a U.S. based financial information and analytics company, highlighted in their May 31, 2023 news headline, "US money supply falls at an unprecedented rate, possibly cooling inflation… The unprecedented decline in M2 is fueled by the Fed's aggressive monetary policy tightening, including lifting interest rates from near zero to over 5% since March 2022, a decline in credit availability, turmoil in the banking sector, and the end of COVID-19 government stimulus efforts.

While certain observers may perceive this type of news of a shrinking money supply as beneficial for curbing our current inflation issues, many prominent economists, such as Steve H. Hanke, an American economist and professor of applied economics at the Johns Hopkins University, have expressed concerns that such a significant fluctuation can adversely affect economic activities, potentially triggering a recession.

Whether you subscribe to the “impending recession" school of thought, maintain an optimistic outlook for a "soft landing," or are convinced a recession can be entirely averted, the indisputable truth is that the future remains uncertain.

This enforces the importance of developing, maintaining and frequently updating a TAM model for your business. TAM models created early in the business cycle can change significantly over time.

For example, when you first started your business, the TAM may have been relatively small as there may have been only a few other companies offering similar products or services, and the market was still in its early stages of development. However, as the market grew rapidly in recent years, such as within AI/ChatGPT, many more companies began competing, and the average price per customer may have increased. As a result, your TAM may have grown significantly.

As more and more businesses adopt new technologies, they are also looking for new ways to manage and optimize their operations, which creates a growing demand for your products and services.

A positive progression of your TAM is a positive development for your business. It means that you have the potential to grow and generate more revenue. However, it also means that you must invest in new products and services and expand your sales and marketing efforts.

On the other hand, what if you notice a decline in your TAM? A decrease in TAM can be a significant setback for a business, as it means less growth potential.

Several factors can contribute to a decline in TAM, including:

1. Economic downturn: A recession or other economic downturn can lead to declining consumer spending, which can shrink the TAM for many businesses.
2. Changes in the market: The market may become saturated, or new technologies or trends may emerge that make the product or service no longer appeal to consumers.
3. Competition: Increased competition can also lead to a decline in TAM as businesses fight for a smaller market share.

Therefore, TAM models should consider the inclusion of insights from key economic indicators such as the Industrial Production Index, Retail Sales Index (RSI), ?Per capita income (PCI), and Employment?Cost?Index?(ECI), at a minimum, to help predict an impending decline before it happens so that a business can take proactive steps to avoid getting to the point of no return.

Following are a few strategies to help you mitigate the negative impact of a decline in TAM with the help of proper B2B Marketing Research:

1. Refocus on your target market: Businesses must ensure they target the right market segment. If the target market is shrinking, businesses must find new ways to reach potential customers.
2. Develop new products or services: Businesses can also try to develop products or services that appeal to a broader range of customers. This can help to expand the TAM and offset the decline in the existing market.
3. Invest in marketing and sales: Businesses must invest in marketing (including Marketing Research) and sales to reach more potential customers. This can help to increase sales and offset the decline in TAM.

A decline in TAM can be a significant setback for a business, but it is not necessarily a death sentence. By taking the proper steps, companies can mitigate the negative impact of a decline in TAM and continue to be successful.

Final words of advice:

• Be proactive: Don't wait for the TAM to decline before you act. Start planning now.
• Be flexible: Be willing to change your business model or products/services if necessary.
• Be creative: Look for new ways to reach your target market.
• Be positive: Don't give up. With hard work and dedication, you can overcome a decline in TAM and continue to be successful.

Quote of the week: “The only way to predict the future is to have power to shape the future” - Eric Hoffer

Actionable Insight Research, LLC, is a?strategic?B2B marketing research advisory?firm with over two decades of professional experience.

At our core, we leverage marketing research principles to provide?strategic custom research?fact-based guidance,?empowering SME clients?to make informed decisions with action-inspired insights. To learn more or to?schedule a complimentary one-hour advisory session, feel free to email us at?[email protected]

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