A Data-Driven Case: Market Sizing (TAM, SAM, SOM) & GTM Goals
Few years back, I had an interview opportunity with Mckinsey for the role of a Product Management consultant.
I was given an estimation based case for a hypothetical situation to pitch investors for funding. My approach was purely number-based, but I overlooked the potential of tactical and strategic skills. Today, I will summarize a few aspects of this case in a structured way, more than just being data-driven.
Case Category: Market sizing & Estimation, Goals & Measures
Case Type: Investor pitch by a startup planning to launch smartwatches in India
💡Tips & tactics: Focus on tactical aspects for product launching and growth roadmap at least for 2 years. Apart from bringing TAM, SAM, SOM, also get the growth projection for 2–4 years and demonstrate the strategic roadmap while covering the marketing strategy. Precisely, a candidate should showcase his/her entrepreneurial mindset which is not only data-driven but growth-centric as well. To outperform other candidates, it is important to set a firm foot from the beginning than going through rigorous filter rounds.
Case:
“Suppose you have been hired as a PM for a tech startup that is trying to launch smartwatches in India in a non-premium segment. You have been asked to pitch investors for early-stage funds. How will you arrive at market sizing estimation, GTM goals & Measures that focus on D2C (direct to customer)?
💡Tips : To start, check all clarifying questions and assumptions with the interviewer.
Candidate: There are some assumptions that I will be considering throughout the case.
Target segment: 15 to 30 years, 55+ years
Target person: Youth, who like trendy smartwatches and are fitness conscious. Senior citizen, who want subtle colours, lite weight, easy to use smartwatch with good battery backup, monitor & track their vitals, steps, and other parameters easily.
Price range: Medium priced smartwatch
Sales channel: Focus on D2C via online platforms.
Region: Pan India launch
Overall, Andriod based trendy & slick looking smartwatch with the best available features in the market e.g health monitoring, battery power, sleep counting, music play, calling facility, sync with Google fit and other top health apps.
Interviewer: Yes, I’m okay with them!
Candidate: To pitch to investors, the first and foremost clothing to do is to show the feasibility of the product through accurate market sizing numbers to win their trust. There are three important sizing metrics- TAM, SAM, SOM. I will get the market size across all 3 sizing metrics.
Simple definition of TAM, SAM, SOM 📄
Total accessible market (TAM): It shows the total market demand for a product or a service. It shows full market potential, but practically no company can capture 100% of the TAM.
Service addressable arket (SAM): It is part of the TAM. SAM is the total sales volume of a product that is sold by all competitors within a specific segment that your company serves.
Service operatable market (SOM): It is the one that matters the most. It shows the realistic objective of the company for the next 2–4 years what will be the target segment that yields the revenue.
Candidate: The below calculation is based on my assumptions.
TAM:
The population of India is 1.4 B
Assumption1: 60% Of total population wears watch = 840M
Out of this, assume 20% wears SmartWatch so the number is (840M X.2)=168M
Hence, the TAM of Smartwatch is around 168M customers in India.
Note: In practice, actual TAM assumptions can be fetched from paid data of various marketing research companies eg IDC in India. However, a basic foundation to arrive at these numbers must be exhibited during the interview.
SAM :
Assumption 2: Indian brands comprising Noise, Boat, and Fire-Boltt captured over two-thirds (2/3) of the total smartwatch market.
2/3 of 168M customer= 110M users, who prefer mid-range priced watches.
Hence, SAM as per the target segment, & price range would be approx 110M customers.
SOM :
Tips: Set realistic objectives that can be achievable in 2–4 years given the limited resources
Assumption 3: Assume the startup can capture at least 20% of 110M users catered by this top 3 smartwatch brands in India=~ 22M=~ 2.20 crore
Hence, SOM = 22M
Assumption 4: Applying an average revenue of $41(INR 3K) per user per year
The revenue potential for SOM=# of customers * avg price paid per unit
= 22M * 3k= 6600 Crore ~=$902M
Note: Here my main intention is to walk you through the concept and approach to solve the case. SOM changes as per data fed into it based on assumptions.
Interviewer: Sure!
Interviewer: Okay! Can you also highlight how why should D2C be preferable in this case over B2C?
Candidate: D2C uses the power of the cloud catalogue and e-commerce to sell their products directly to end-users. It is a good option for new consumers brands in a competitive market like smartwatches. The recent success story of D2C in India is- BOAT, NOISE, Sugar cosmetics etc. There are some benefits associated with this approach -
Cut out from retailers & wholesalers (no middle man): This creates a better margin and increases LTV. Let me explain this by using numbers.
If the cost of the smartwatch is $30.2, and the company sell this to retailers for $35 and their mark up is $41, then a company makes only a profit of $4.8 ( $35–$30.2). But if the company skips the middle man and go for online D2C and sell at the same price as the wholesaler $41, the net profit would be ($41-$30.2)=10.8$, and the profit margin would be approx 36%.
Control over customer’s end-to-end experience (CX): The company gets control over the end to end customer journey and experience. This allows making the experience better as compared to the intervention of the retailer, which blurs the visibility of customer experience from the shelf into the customer’s hand. D2C brings customers closer through engagement and social media engagement.
No dependency on physical outlets: The supply chain planning around the company, retailer/wholesalers can be controlled and more focus can be given to improving customer journey and experience which is the core of the D2C, own the brand story.
Interviewer: Can you quickly define some GTM goals some success measures aligned with your D2C marketing.
Candidate: I have arrived at the top 3 goals and the measures as given below.
Goal 1: % increase in market share through sales units increase without dissolving margin Q0Q.
Rationale: D2C GTM plan should focus on 3 important drivers before defining measures around these goals.
Traffic driver: Smartwatches and electronic goods can be a traffic drivers product, so unit sales is an important consideration. So, the following measures can be used to measure this goal.
a-Unit Session Percentage (Conversion) Rate: How many users convert to paying users.
Margin driver : To bring the margin driven aligned to the above goal, profit measures are appropriate. These measures could be-
b- Product margin: COGS/Gross sales price
3- Promotional driver: One of the strongest marketing strategies is promotional which is maintaining a balance between the price of the product and advantages associated with the promotional offers. The important measures can be:
C- CPA/CAC: Cost per acquisition
Goal 2: Increase in CX (Customer experience) through Personalization MOM
Rationale: In D2C marketing, personalization plays an important role and an important revenue driver (20–30%)
This measure is driven by a Growth driver and some best metrics to measure this goal is-
d-AOV (average order value): Average dollar placed each time a customer place an order
e-NPS (Net promoter score)
💡Tips tactics: Connecting dots across your knowledge is the key to success. For instance, quoting and anecdotes like increasing the basket size aka AOV is a great way to improve the profit/margin by maximizing user spending. Hence. acquisition cost along with AOV together gives the future profitability insights.
Goal 3: Robust SEO Optimization
Rationale: the Most popular form of D2C marketing is via SEO optimization since they rely heavily on the online e-comm platform. Strong SEO brings incredible results.
Measures are-
f-Pay per click (PPC): It can potentially give incredible ROI. There are examples quoted by google data where revenues have gone up to $2 for every $1 business spent in paid search advertising.
g-CTR (Click-through rate) is measured to show how the reader persuades click on the ad links and finally convert as a customer.
💡Tips & Tactics: Avoid randomly picking goals and measures. Set up measures around goals that logically fit and are impeccable to show the results.
Interviewer: Okay and signed off!!
Myth buster: While working in enterprise product companies PMs often think they don’t need to be data-driven & know the concepts of sizing, estimation, & metrics etc?
Entrepreneurship is a mindset that doesn’t only belong to startups. Any enterprise PM can exhibit this mindset which is not being rigid and working with a defined set of roles and responsibilities. There is a very thin line between enterprise and startup cultue. What is it? It is freedom, opportunity to work with some best breed talents, minimal hand-holding, but mostly into a tight budgeted and high performing system. That is all!!
Pricicely, product management doesn’t come with strict defined roles and responsibilities. You are the CEO of your product so limited understanding will not lead you to your ultimate goal of future CPO, so stay in the cycle of learning, test (connect dots & implement), iterate (re-learn).
I hope you enjoyed reading. Feel free to add me to your Linkedin Network.
