This blog gives separate space to the Definition of the Strategic Relevant Market. It is the starting point of all strategic thinking as it directs the whole mindset of the organization. It predetermines the inclusion and exclusion of the scope of thinking.
Fundamentally, the SRM should be defined coming from the market. Value chains should be analyzed, assessing where BU’s technologies fit in. We see this task more with marketing, the unit able to consider comprehensively the BU’s options. Here the task is explained strictly from the PM’s point of view, e.g. related to a Product (an existing, or new one).
The definition of the SRM, in wording and numbers, is a basic task for the PM, as it sets the frame for all strategic analysis, investment decisions and the following market related actions. The wording gives a first idea about the business arena for the Products. The numbers are for fixing the actual potential and its future growth.
The growth matrix, used to describe innovation paths, is suitable for setting, when the definition of the SRM is necessary precondition. The combination of existing/new product with existing/new application renders four alternatives. In three of them the SRM has to be defined at the very beginning of any activity:
| Existing product | Existing application | |
| New application | →SRM | |
| New product | Existing application | |
| New application |
When you start with this work, talk with potential customers, tech service, sales, other BUs, and keep talking with them!
The SRM can be defined by different criteria:
- Chemistry
- Industry selection
- Effect
Chemistry It’s the easier, straight way: the chemical definition of the Product(s) helps. Additionally, it renders the highest possible potential, as it takes all applications into account. Consequently, in company organized by industries, cross selling shall be necessary to cover the total demand.
Industry selection
Also in this case clear borders can be set. The potential will be lower, as not all possible applications are covered. Evidently, the PM wants to set a market focus and specialized, dedicated sales expertise is a success factor.
By effect
Foundation is, the Product(s)’ effect in the application has to be described and measured (!), as well as explained to and understood by the customers. The PM gives a first, strong hint in one direction: value selling.
The SRM definition should be done with few (2-3) short sentences to depict:
- The Products (chemistry)
- Industry(ies)
- Global / Regions
- Customers
- Actual size and future growth
Despite its shortness, it should render a clear picture, addressing key points:
- It’s just an expansion of the existing business?
- It’s a new market (new customers portfolio!) for the BU, for the company?
- It’s a new chemical market at all, or will the Product enter an existing market?
- It can be served with existing or additional market related resources (tech service, PM, marketing, sales)?
The wording should be in line with the “BU language”, easy to be communicated and understood also for such, who have no knowledge about the Products. The PM sends a message in executive summary form: I exactly know what I’ m doing here.
Here following an example for the case “new product for the BU / existing market for the chemical industry”, global with regional focus:
The SRM for the Product is that of the ….. (chemical definition). In 2018 the global demand is about xt/y (Europe x%, Asia x%), worth x million €. It will grow with an average of x% p.a. up to xt/y (x million €) in 2025. Direct customers will be the x (number of customers) bigger producers of … (or the bigger users of …) in the two main regions Europe and Asia covering x% of the total demand in industries already served by the BU (x% globally, thereof x% in Europe, x% in Asia) and others delivered by third BUs.
The SRM size can be assessed basing on industry statistics and market studies, as well as through extrapolation-interpolation starting from data as such already communicated within the BU (good chance!), industry statistics, Brutto Domestic Production, market studies. One nice way to do it, is shown in Wikipedia “Back-of-the-envelope calculation”.
Here following a calculation example about a product for treating steel sheets against corrosion in automotive. The potential is consequently related to surface. The numbers necessary for calculating the potential demand are:
– The production of steel sheet in tons
– The amount of it for automotive
– The steel sheet average thickness used in automotive
– The density of steel rolled to sheets
– The amount of Product for treating 1 m2of steel sheet
With an excel spread sheet the surface (both sides of the sheet) can be easily computed. The data a) and d) should be publicly available and e) comes from the development unit. Tricky are b) and c): they are assumptions strongly impacting the result. Therefore it is imperative to talk with experts for steel and automotive.
It’s very useful to start from the very beginning listing potential customers and their demand in an excel spread sheet: depending from the SRM definition by industries, countries, regions. Experience shows, it’s a very helpful data base, not only for assessing the potential demand, but also for following the project progress: contact implementation, Product introduction and more.
Pay attention, when computing the future potential using growth rates (x% p.a). for a longer period. Avoid stratospheric numbers at its end. Key is: the logic for assessing the numbers should to be “undefeatable”.
Unnecessary to mention: the fewer assumptions are made, the lower the error range will be. And, maybe you keep old controller wisdoms in mind: “numbers which fit together, are better than correct ones” and “no one can have better numbers than the controller himself (the PM in our case).
Check list:
- Renders the SRM definition a clear picture, covering the very main points?
- Are the numbers realistic, the logic for assessing them reasonable?
- Is the SRM easy to be communicated and understood?
- Are you prepared (also with additional arguments, which are not yet have been communicated…), in case you are challenged?
Well-written and informative article. If you’re interested in learning more, I suggest click here for supplementary resources.