Innovation is a hot topic, but as we know, all the innovation in the world is worthless without successful commercialization.
For a variety of reasons, companies often struggle with the commercialization of new products (and services). These include lack of clarity about the value proposition, fear of failure, lack of market knowledge, loyalty to incumbent business models, and competing internal agendas. As a result, companies are unwilling or unable to move forward with commercialization, or their commercialization strategy or execution is ineffective.
Some companies have implemented the agile methodology or established skunk works or separate business units to address some of these problems, but these solutions are not relevant or practical for every company. And of course, many companies conduct some level of market research, but it is often narrowly focused on certain issues vs. being holistic and focusing on all the issues relevant for commercialization.
Based upon our B2B marketing experience, defining, estimating and understanding the addressable market is a critical starting point for evaluating opportunities for new products (and services) and successful commercialization.
The addressable market concept is a well-established segmentation concept, but it seems to be overlooked in this world of internet-driven micro-segmentation and Big-Audacious-Hairy-Goals.
It enables your company to define with greater clarity the market space in which your new product would play, and with this focus, your company can a) obtain more meaningful market knowledge, b) evaluate more effectively the attractiveness of the opportunity, c) adjust, as needed, to enhance the attractiveness of your new product and d) thereby develop a successful commercialization strategy.
Addressable market concept involves the following elements:
Definition: Addressable market is typically defined by product performance (or service capabilities), price and channel/market coverage. In some cases, it can largely be “predefined” by a company’s existing business, but in other cases a company is starting with a “blank sheet”. However, this definition does not determine if your new product actually delivers meaningful value vs. competing solutions, also an important issue.
Sizing Estimates: The addressable market is typically a sub-set of the total market, and thus, unique sizing estimates must often be developed since no published information exists, which can be a challenging exercise.
Understanding the Market Space: Defining the addressable market and estimating the market size has implications for target customers, channels, competitors and growth potential, and to properly understand this space, your company typically needs to address issues that involve all elements of the marketing mix.
Strategy Implications: All these factors and the related analysis have strategy implications in terms of the attractiveness of the opportunity, adjustments to modify your new idea and make the opportunity more attractive and the commercialization strategy.
In a recent article (“The value premium of organic growth”), McKinsey emphasized the importance of organic growth for long-term success. To achieve organic growth, new product (and service) ideas are certainly required, but just as important, a disciplined process is required to evaluate those ideas, identify the “keepers” (vs. the “duds”) and then successfully commercialize them. From our experience working with clients, the addressable market concept is a critical starting point in this process.