Smaller is Better – Really!
How many followers do you have in Social Media? How large is your market share? What is your company’s Total Addressable Market?
For years we have been conditioned that bigger is better. But that is not always true.
Take major league sports, for example. Conventional wisdom is that the bigger the market, the more valuable the team.
Consequently, major sports leagues have long coveted teams in the largest markets to sell more tickets, sponsorships and merchandise as well as reach the largest number of viewers for more valuable broadcast and cable rights.
Why then, would the National Hockey League this past April approve a $1.2 billion sale of the Arizona Coyotes from Phoenix, which is the 11thlargest media market to a new owner in Salt Lake City, the 29th-largest media market?
There were many reasons, but one of them was that the league believed that Salt Lake City’s demographics would produce more dedicated, loyal and affluent fans.
Salt Lake City has a newly booming technology hub which attracts younger workers with higher salaries. Salt Lake City is also a major winter sports destination while Phoenix has a higher percentage of retirees who may be less enthusiastic about hockey. Not only is there a higher chance those younger, affluent fans in SLC will buy more tickets to more games and spend more money on merchandise, but also buy more bundles of streaming services featuring the NHL.
The goal is to make more money off very loyal, albeit younger and fewer, fans with more disposable income and a higher propensity to embrace hockey.
So far, it looks like the sale is going to reap dividends. Fans have already paid ticket deposits for over 30,000 tickets. As importantly, 64% of those fans are new sports fans who had not attended any Utah Jazz games – the only other major league team in town.
Sometimes it just makes more sense to target a company’s product or service to a smaller, yet more focused and desireable segment of the population, rather than to a larger, more diverse audience.
The more powerfully a potential customer perceives their need for your product, the higher percentage chance that potential customer will convert and become a repeat customer – which increases total lifetime value of that customer (CLV).
Why is that important?
- Revenue Stability and Predictability – Customers with high CLV tend to make more repeated purchases over time, providing a more stable and predictable revenue stream.
- Lower Acquisition Costs – Retaining existing customers costs less than acquiring new ones
- Higher Profit Margins – Repeat customers are often more loyal to the brand and its products, reducing the need for heavy discounting and promotions
- Customer Loyalty and Advocacy – Customers with high CLV are more likely to act as brand advocates, promoting the business through word-of-mouth and social proof
Take a look at your customer base. Is your target audience a large, diverse audience or a smaller, focused target? It may be time to embrace “smaller is better” and reap the revenue (and profit) rewards.
