The Potential Market and the

Market Need
Entrepreneurship

1
LEARNING COMPETENCIES

After going through this lesson, you are expected to:

• recognize a potential market and analyze the market need.

2
 Pre-Activity
DIRECTIONS: To check your prior knowledge about the topic, please analyze the picture below and list down at
least three (3) potential markets that entrepreneurs should consider during this COVID -19 pandemic and indicate
their needs. Write your answer in the space provided.

https://images.search.yahoo.com/
3
 POTENTIAL MARKET MARKET NEED

1. 1.

2. 2.

3. 3.

4
Question?

What Is a Potential Market?

5
 The Potential Market
1. Potential market is the part of the total population that has shown
some level of interest in buying a particular product or service.
Potential market is also called Total addressable market (TAM) (MBA
Skool Team, 2018).

2. A potential market is the part of the market you can capture in the
future. It includes the demographic groups that are not currently your
customers but could become customers in the future (Lake, L, 2019).

3. Market potential is the total demand for a product in a given business

environment.
6
 The Importance of Potential Markets (Lake, L., 2019)
 Potential markets are an important part of a business's future growth.
 Ensure the future of your business by identifying new customers.
 Think proactively about ways for your business to grow and change.
 Show the potential of your business to investors or collaborators.
 Increase your revenue.
 Create a plan B that will weather changes in the economy or market.

7
 How to Identify Your Potential Markets (Lake, L., 2019)

• Consider every target demographic that you currently

sell to, as well as those you have not yet targeted.
Identify what they have in common with each other,
new milestones that they will encounter in their lives
that will impact their buying patterns, and where they
overlap or diverge from your current customers.

8
 Ask yourself these questions that will help you identify both
new ways to market your current products or services, as well
as new products and services that
you can begin selling.
• What other products do my customers need now?
• What related products will they need in the future?
• Who else could make use of the products I am selling now?
• What demographic information does that new group have in common with my current
customers?
• What demographic information does that new group have in common with each other?

Note: Depending on the size and age of your company, as well

as your industry, you may have a clear picture of the
potential markets that are available. 9
 Reaching Your Potential Market (Lake, L., 2019
Once you've identified and chosen a potential market to begin targeting, you will
need new marketing strategies in place to communicate with them. Use this profile
to identify:
 The demographic information that people in a group have in common.
 The best forms of media to reach them.
 How they prefer to shop and make purchases.
 The concerns, struggles, or problems that you can help them overcome.
 What values matter to them, both in everyday life and when shopping.
 The language that resonates with them.
10
The figure below depicts what is a potential market with respect to the
total population and how it can be converted to a penetrated market:
Available Market
POTENTIAL
MARKET • Prospects who are willing and
capable (have sufficient
AVAILABLE resources) buyers, and have
MARKET
access to a particular market or
service
TARGET
MARKET (www.businessdictionary.com).
• Defined as the number of people
who are both willing and
PENETRATED capable of buying a particular
MARKET
product or service in a
particular market (MBA Skool
11
Team, 2020).
The figure below depicts what is a potential market with respect to the
total population and how it can be converted to a penetrated market:
Target Market
POTENTIAL • Refers to a group of potential
MARKET
customers to whom a company
AVAILABLE
wants to sell its products and
MARKET services. Target markets are
generally categorized by age,
TARGET
MARKET
location, income, and lifestyle.
Defining a specific target market
allows a company to home in on
specific market factors to reach
PENETRATED
MARKET and connect with customers
through sales and marketing
efforts. (Kenton, W., 2019). 12
The figure below depicts what is a potential market with respect to the
total population and how it can be converted to a penetrated market:

Penetrated Market
POTENTIAL
MARKET • A set of customers or clients
who are already using a
AVAILABLE particular product or service. A
MARKET
penetrated market means that
the potential users of a product
TARGET
MARKET or service are aware of it, and in
many cases are active
consumers of it.
PENETRATED • (www.businessdictionary.com).
MARKET

13
 The Market Need

1. Need
• A motivating force that compels action for its satisfaction. Needs
range from basic survival needs (common to all human beings)
satisfied by necessities, to cultural, intellectual, and social needs
(varying from place to place and age group to age group)
satisfied by necessaries (www.businessdictionary.com).
• A driver of human action which marketers try to identify,
emphasize, and satisfy, and around which promotional efforts are
organized (www.businessdictionary.com).
14
 The Market Need
2. Market
• A Market is a place where two parties can gather to facilitate the exchange of
goods and services. The parties involved are usually buyers and sellers. The
market may be physical like a retail outlet, where people meet face-to-face, or
virtual like an online market, where there is no direct physical contact between
buyers and sellers (Kenton, W. & Boyle, M., 2020).
• A market does not refer to a particular place but it refers to a market for a
commodity or commodities. It refers to an arrangement whereby buyers and
sellers come in close contact with each other directly or indirectly to sell and
buy goods (Shaikh, S., retrieved 2020).
15
 The Market Need

2. Market (cont.)
• A market is any place where sellers of particular goods
or services can meet with buyers of those goods and
services. It creates the potential for a transaction to take
place. The buyers must have something they can offer
in exchange for the product to create a successful
transaction (Moffatt, M., 2019)
16
 Your market consists of (Stull, C., Myers, P.& Scott D.M.
(2008) as cited in: https://learn.marsdd.com/):
Existing customers: People who have already purchased your
product. Prospects: People who have not yet purchased your product
but are considering it.
Target market users: People in your target market who are not
currently looking for a solution.

Target market users

Existing customers Prospects
17
 a. Target Market
Commonly used methods for segmenting the market are follows.
1. Geographic segmentation – the total market is divided according
to
geographical location.
• Variables to consider:
a. Climate
b. Dominant ethnic group
c. Culture
d. Density (either rural or urban) 18
 Commonly used methods for segmenting the market are
follows.
2. Demographic Segmentation – divided based consumers.
• Variables to consider:
a. Gender e. Education
b. Age f. Religion
c. Income g. Ethnic group
d. Occupation h. Family size

19
 Commonly used methods for segmenting the market are
follows.
3. Psychological Segmentation- divided in terms for customers think
and believe.
• Variables to consider:
a. Needs and wants e. Knowledge and awareness
b. Attitudes f. Brand concept
c. Social class g. Lifestyle
d. Personality traits

20
 Commonly used methods for segmenting the market are
follows.

4. Behavioral Segmentation- divided according to

customers behavior
pattern as they interact with a company.
• Variables to consider:
a. Perceptions d. Benefits
b. Knowledge e. Loyalty
c. Reaction f. Responses
21
 B. Customer Requirements

There can be two types of customer requirements:

1. Service Requirement - Intangible thing or product that is not able
to be touched but customer can feel the fulfillment.
2. Output Requirement - Tangible thing or things that can be seen.
Characteristic specifications that a consumer expects to be fulfilled
in the product. Costumer that will avail services as a product, then
various service requirements can take the form of output
requirements.

22
 C. Market Size

Entrepreneur’s most critical task is to calculate the market size,

and the potential value that market has for their startup business.
Market research will determine entrepreneur possible customers in
one locality.

What is Market Size?

23
Define the Market Need for Your New Business

Why is it important to clearly define

market needs?

24
 Ways to define your market (Lancaster SCORE (2010):

• Consider whether the business offers a new solution to an old problem or

complements an emerging trend.
• Have a clear picture of your target market.
• Determine the benefits that your product or service offers.
• Examine industry data that can confirm whether there is a sustained, growing
demand for your product or service.
• Identify the percentage of market share that it is realistic for you to capture. The
more competition you have, the lower the margins will be.
• Consider how realistic your pricing is. How can you present your product or service
to potential customers so that it appears to be a good value, while still affording you a
healthy profit?
25
 Forces of Competition Model
It is also known as the “five forces of competition,” An industry
environment is a competitive environment. Regardless of what
product or services you have, competition is always present

Competition – it is the act or process of trying

to get or win something.

26
 5 Forces Competing Within the Industry

1.Buyers
2.Potential new entrants
3.Rivalry among existing firms
4.Substitute products
5.Supplier
27
 2. Potential New Entrants
A new entrant is defined as the one who enters something. For example,
the level of capital requirements, if the business requires huge capital, new
entrants should decline to join the business. This gives a threat to the business.
This can be notice if there is the presence of the following factors:

a. Substantial capital requirement.

b. Strict government policy.
c. Difficulty in accessing distribution channels.
d. Economies of scale.
e. High cost of product differentiation.
f. High switching cost 28
 3. Rivalry among Existing Firms
Rivalry is a state or situation in which people or groups are competing
with each other.
The intensity of rivalry among existing firms is characterized to the following factors:

a. Diversity of rivals.
b. Number of competing firms.
c. Characteristics of the products or services.
d. Increased capacity.
e. Amount of fixed costs.
f. Rate of industry growth.
29
 4. Substitute Products
Substitute means anything that takes the place or function of
another.
A substitute product can give a big threat in the industry environment if the
following factors are notice:

a. Switching cost is low.

b. Preferences and tastes of the customers easily change.
c. Product differentiation is highly noticeable
d. The quality of substitute products dramatically improves.
e. The price of substitute product is substantially lower. 30
 5. Suppliers
The Suppliers are the one that provide something that is needed or wanted.

Factors:

a. The supplier has the ability for forward integration.

b. Suppliers in the industry are few, but the sales volume is high.
c. Substitute products are not readily available in the market
d. The switching cost is very high.
e. The product or service is unique.
31
 REMEMBER
• Potential market is the part of the total population that has shown
some level of interest in buying a particular product or service.
Potential market is also called Total addressable market (TAM) (MBA
Skool Team, 2018).
• Available Market are prospects who are willing and capable (have
sufficient resources) buyers, and have access to a particular market
or service (www.businessdictionary.com).
• Target Market refers to a group of potential customers to whom a
company wants to sell its products and services. Target markets are
generally categorized by age, location, income, and lifestyle (Kenton,
W., 2019).
• Penetrated Market is a set of customers or clients who are already
using a particular product or service (www.businessdictionary.com).
32
 REMEMBER

• Need is a motivating force that compels action for its satisfaction. Needs
range from basic survival needs (common to all human beings) satisfied
by necessities, to cultural, intellectual, and social needs (varying from
place to place and age group to age group) satisfied by necessaries
(www.businessdictionary.com).
• A Market is a place where two parties can gather to facilitate the
exchange of goods and services (Kenton, W. & Boyle, M., 2020).
• Existing customers are people who have already purchased your
product.
• Prospects are people who have not yet purchased your product but are
considering it.
• Target market users are people in your target market who are not
currently looking for a solution.
33
 CHECK YOUR UNDERSTANDING

Considering the ways to define your market, evaluate the situations below using 1 to 5
rating scale, 5 as the highest and 1 as the lowest. Justify your answer in 1 to 2 sentences
only. Write your answer in the space provided.

SITUATIONS RATING JUSTIFICATION

To produce face masks and PPEs.
To open on-line business for
fashion accessories.
To open a massage center.
To open a computer shop.
To open a carinderia
34
 Additional Activities

Conduct a short interview of any successful entrepreneur in your locality.

Ask the
following question:
 What is the nature of your business?
 Who are your customers?
 What industry are you operating?
 How much was your starting capital?
 How many years in operation?
 How many manpower involved from the start of operation until now?

35
Thank you

36