BUSN 101 Topic 11 - Marketing and Money: Estimating Market Size
Why do you need to re-evaluate market share over time?
Following these steps to estimate your market size (value) is by no means an exact science. Still, there are ways to maximize the effectiveness of this exercise: - At the time you make your first estimate, examine each assumption you make and what would cause it to change. To factor in the risks of change, calculate best-case and worst-case scenarios in addition to your expected scenario. - Over time, monitor the accuracy of your initial assumptions and whether you need to modify them. - By understanding market share, companies can furthermore measure consumer perception of new products or services, promotions, pricing strategies, and other key business initiatives which puts them in good stead for a growth in profits.
What are the five steps you need to follow when calculating the size of a market?
Main approaches to estimating market size For a simple, basic approach, follow these five steps: 1) Define your target customer 2) Estimate the total number of target customers 3) Determine your penetration rate 4) Calculate the potential market size: volume and value 5) Apply and re-evaluate over time
Define market share
Market share is the percentage of an industry's sales that a particular company owns. Essentially, it is the share of your business's total industry revenue from selling your products and services. Businesses with larger market shares are industry leaders and competition for smaller companies.
Define penetration rate
Number of the priority population exposed or reached of any of the intervention strategies.
Define target customer
Try to identify the most important characteristics of your target customers: e.g., income, relevant locations/neighborhoods, dog ownership
Define potential market size
the number of individuals in a certain market segment who are potential buyers. More technically, it's the total number of potential customers or sales in a given period (usually a year), or the total potential revenues you can reach in that time.
Why do you use Best Case, Neutral, and Worst Case Scenarios?
Combining the best-case and worst-case scenarios allows for a more balanced, informed decision-making process. You weigh the potential risks and consequences while maintaining a clear vision of success.
Define total available market
The Total Available Market refers to the total demand for a product or service across all segments, all possible substitutes or alternatives and via all potential channels i.e. it is the total demand available to a supplier if they were the only provider of a product or service and no alternatives were available.
How should you approach market sizing? (Top-Down, Bottom-Up, or Value Theory)
While there are many many ways to estimate the size of a market, generally, these can be summarized into: 1. Top-down, using industry and research reports 2. Bottom-up, using data from early estimates of sales 3. Value theory, using conjecture about buyer willingness to pay Where possible, most small business owners start with a bottom-up approach, essentially counting and valuing the number of customers they are likely to have.They then cross this with whatever other data they can gather over time.
