How to do Market Sizing?

India has been the most talked about startup nation with over 6000 startups added in 2016. And the intriguing question which faces any new business is Market Sizing. It is not only new businesses but also existing businesses who have not looked at the angle of market sizing to determine whether they are realizing the true potential of the market or not. Market sizing is a key component of strategic marketing planning. Knowledge of the size of target market enables companies to fully assess opportunities and accurately plan their approach and investments.

Channelplay has been involved into various market entry strategies and have been doing market sizing for various industries. There would always be the following approaches to size the market:

  1. Demand Side approach: In simple terms, market sizing is the approximated target number of people to whom products or services will be sold. Some of the variables which gets plugged into this number are:
    • Consumer segmentation
    • Occasions & Quantum of consumption for each segment
    • Frequency of purchase/replacement
  1. Supple Side approach: When target consumer is highly fragmented or consumer data is unreliable or non-computable, then supply side approach is often considered. Supply size market sizing entails looking at the competitors serving the market and some of the variables which gets plugged in are:
    • Volume/Value sales of each competitor
    • Sales growth trend
    • Are competitors able to fulfil the current market need? Are competitors providing the ‘must-have needs’ or ‘good-to-have’ or both.
    • What is the level of market saturation for the need i.e. are competitors able to earn revenue from the existent need of the consumer or other non-allied solutions that do not meet the need in question.

Alternatively, market sizing can also be done through channel & trade i.e. retailers & distributors. Some of the variables which gets plugged in are:

  • Sales Volume/Value sales of retailer/distributor
  • Sales growth trend
  • Seasonality of sales
  • Retailer & Distributor segmentation into low, mid & high and extrapolation to whole universe

Irrespective of the demand side or supply side approach, there are some questions which must be considered during market sizing exercise:

  • Time-period: Market sizing is usually assumed for a period of one year, but one could look at any timeframe that suits the business.
  • Geographic regions: Which geographies does market sizing cover - locally, nationally or internationally?
  • Probable factors: What issues are affecting the market? Is there anything, such as regulations, that might provide barriers to the market, or factors that might change buying habits in the future?
Market sizing determines the potential revenue that could be generated by the business and should be a major consideration in business strategy, as well as a determining factor of the products or services that any company creates.

Topics: Market Research

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