In Course 1 we looked at the importance of identifying a target market and understanding the demographics and motivations of potential customers. We have also seen that a good knowledge of who our competitors are and what their offer is can help us to define and refine our own offer. In this activity you will use target market analysis to identify the specific group of customers most likely to purchase your product or service considering factors such as demographics, location and lifestyle. You will use customer analysis to further evaluate the needs, preferences and behaviours of these potential customers to ensure your product or service meets their needs and use competitor analysis to find out who your competitors are and what their offer consist of.

TAM, SAM and SOM

TAM, SAM and SOM are acronyms used to name different sub-sets of potential market share and revenue-making potential for start-up business.

• TAM refers to the Total Available Market, i.e. the potential total market demand for your product.
• SAM refers to the Serviceable Available Market. This is a subset of TAM and includes target groups within your geographical reach. As you are unlikely to be the only hospitality business in your region, it is likely you will only be able to capture a small part of this market.
• SOM is the Serviceable Obtainable Market and is the market group your business can actually reach and capture. This is likely to be your short-term goal when starting up a business.

Understanding the difference between TAM, SAM and SOM is important because it enables stakeholders and investors to understand that once you have penetrated the local market successfully (SOM), there is room to expand further (SAM) which would deliver a good return on investment. TAM is important when investors want to know how big the potential market is for the product or service.

TAM, SAM and SOM can help answer these questions:

• How big could you grow in the future?
• How much money could you potentially make?
• How many products could you sell?

Have a look at the Stats NZ website which outlines New Zealand’s business demography statistics for an overview of the potential market size. The links on this page allow you to download detailed information about markets and businesses in different regions and different sectors and can provide a lot of useful data.

A value proposition is a clear and compelling statement that outlines the unique benefits and value your product or service offers to customers. It explains why customers should choose your offering over competitors, highlighting what makes your product or service stand out. In the hospitality industry, a strong value proposition should address specific customer needs, solve a problem, or create a memorable experience that resonates with your target market. By clearly articulating the value your product provides, you can effectively communicate its relevance and appeal to potential customers, which is crucial for successful marketing and business growth.

Remember: in Course 2 you learned that a PESTEL analysis refers to:

• Political
• Economic
• Socio-Cultural
• Technological
• Legal
• Environmental

You will now take that knowledge and put it into practice as you develop your hospitality product or service. The first step is to investigate and analyse New Zealand’s business environment. The following exercise looks at the current situation in the form of a PESTEL analysis – you can complete this important exercise in pairs if you wish.

Remember: in Course 2 you saw that a SWOT analysis refers analysing the internal and external business environment for an organisation in terms of:

• Strengths (internal)
• Weaknesses (internal)
• Opportunities (external)
• Threats (external)

Using the knowledge of SWOT analysis you have gained and have further researched; you will now apply that to your concept for a new hospitality product or service to determine how viable it is and which areas you need to work on to improve before continuing with its development.

You’ve reached the end of the learning material for this topic. By now your idea should be taking shape and you should have identified your target market and formalised your value proposition. You should also have conducted a PESTEL analysis for the general New Zealand business environment, plus a SWOT analysis to identify the internal strengths and weaknesses as well as the external opportunities and threats to be aware of. Before continuing, make sure you have shared your work so far with your tutor for feedback and guidance if needed.