During a lecture on Business Model Design, we discussed the target market of businesses. I spoke about a common trap for many SMEs, which is the attempt to target a large market in the belief that it offers vast opportunities.
Take, for instance, markets like health enthusiasts or beauty lovers. These markets seem huge. There's a common notion that capturing just 1% of such a market can sustain a business.
This aligns with a joke often told about a business planning to sell toothbrushes in the vast Chinese market, thinking that just 1% of the market share would lead to riches. But in reality, even 0.01% of the market can be unattainable.
The issue is not how big the market is, but whether our products are competitive enough in that market. Do we have a strong Value Proposition to capture and retain customers? Otherwise, our products might just be another option in the market but not the preferred choice. We might get lucky to be considered but then lose to stronger players with advantages we can't match.
This trap is something I always emphasize to my students to be cautious of when writing a business or marketing plan. Many tend to target large markets thinking that even a low conversion rate or market share would still be profitable. However, this is not necessarily true. Another common mistake businesses make is overestimating their product's superiority over competitors, which may not be the case at all.
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