During the preparation of their business plans, companies of all sizes are faced with the challenge of determining the size of their markets. To begin, companies must present the size of their "relevant market" in their plans. The market is equal to the company's sales if it were to capture 100% of its specific niche market. Conversely, stating that you were competing in the $ 1 trillion US healthcare market, for example, is a telltale sign of a poorly reasoned business plan, as there is no company that could benefit $ 1 trillion in healthcare sales. Establish and communicate a credible size of the relevant market is much more powerful than the presentation of the generic industry figures.
The challenge that many companies face is their inability to size up their markets, especially if they are new or competing in rapidly changing markets. On the one hand, the fact that the markets are new or evolving is the reason why there may be a great opportunity to establish them and become the market leader. Conversely, investors, shareholders and management are often skeptical to invest resources because, since the markets do not yet exist, the markets may be too small, or not really exist.
Growthink has been hindered by the difficulty of sizing emerging markets numerous times and has developed its own methodology to solve the problem. For starters, it is essential to understand why the traditional methods of sizing market are ill-equipped to size emerging markets. For example, if a research firm were to use traditional methods to market size, such as the coffee market in the United States, it would consider demographic trends (for example, aging baby Boomers), psychographic trends (for example, increased awareness of health issues), past sales trends and consumption rates, price movements, the brand concurrent actions and the development of new products and channels / retailers, among others. However, the achievement of such an analysis for emerging markets is a challenge that several of these factors (eg, past sales, the demographics of the customer when there are no current customers) do not exist because Markets are currently untapped.
The methodology required to size these new markets requires two approaches. Each approach will generate an approximation of the size of the potential market, and often the figures will work together to provide a solid foundation for the potential market. Growthink calls the first approach "peel the onion." In this approach, we start with the generic market (eg, the coffee market) that the company is trying to penetrate, and remove pieces of this market that it targets. For example, if the company created an ultra high-speed coffee maker that sells for $ 600, it would initially reduce the market size by factors such as retail channels (for example, mass marketing would be not carry the product), demographic factors (low-income customers do not buy the product), etc. By peeling back the generic market, you eventually will be left with only the relevant portion thereof.
The second method requires the assessment of the market from several angles to bring the potential for market share, answering questions, including:
The challenge that many companies face is their inability to size up their markets, especially if they are new or competing in rapidly changing markets. On the one hand, the fact that the markets are new or evolving is the reason why there may be a great opportunity to establish them and become the market leader. Conversely, investors, shareholders and management are often skeptical to invest resources because, since the markets do not yet exist, the markets may be too small, or not really exist.
Growthink has been hindered by the difficulty of sizing emerging markets numerous times and has developed its own methodology to solve the problem. For starters, it is essential to understand why the traditional methods of sizing market are ill-equipped to size emerging markets. For example, if a research firm were to use traditional methods to market size, such as the coffee market in the United States, it would consider demographic trends (for example, aging baby Boomers), psychographic trends (for example, increased awareness of health issues), past sales trends and consumption rates, price movements, the brand concurrent actions and the development of new products and channels / retailers, among others. However, the achievement of such an analysis for emerging markets is a challenge that several of these factors (eg, past sales, the demographics of the customer when there are no current customers) do not exist because Markets are currently untapped.
The methodology required to size these new markets requires two approaches. Each approach will generate an approximation of the size of the potential market, and often the figures will work together to provide a solid foundation for the potential market. Growthink calls the first approach "peel the onion." In this approach, we start with the generic market (eg, the coffee market) that the company is trying to penetrate, and remove pieces of this market that it targets. For example, if the company created an ultra high-speed coffee maker that sells for $ 600, it would initially reduce the market size by factors such as retail channels (for example, mass marketing would be not carry the product), demographic factors (low-income customers do not buy the product), etc. By peeling back the generic market, you eventually will be left with only the relevant portion thereof.
The second method requires the assessment of the market from several angles to bring the potential for market share, answering questions, including:
- Competitors: who is competing for the customer that you will be serving, what is in their product pipeline, once you release a product / service, how long will it take for entry into the market, who else may enter the market, etc.
- Customers: what are the demographics and psychographics of customers, you will be targeting, what are the products they currently use to meet the same need (substitute products), how are they currently purchasing these products What is their degree of loyalty to current suppliers, Etc
- Market factors: what are other factors that will influence the size of the market - government regulations, market consolidation in related markets, changes in prices for raw materials, etc.
- Case Studies: what other markets have experience similar transformations and what were the rate of adoption of the customers in the markets, etc.