In this article we look at market sizing and how this understanding benefits organisations.
As organisations grow, it increasingly becomes important to have an accurate view of the market they operate in to help:
Importance of having ‘one truth’
Within many companies it is not uncommon for people to have very different views of the market, especially when it affects them personally.
A valuable first step can often be defining a single view of the market that is then used throughout the organisation. Whether the market estimate is right or wrong is largely irrelevant at this stage, the real benefit of having ‘one truth’ comes from the consistency it brings to discussions, decision making and operations. In particular, it increases awareness of market generally, driving trends and the impact of competitor activity.
Linked to this the benefit of clearly allocating responsibility within the organisation to an individual or a team for updating and refining the ‘one truth’. In large organisations, it can also help to use a logo or identifier to demonstrate the information is from an approved source.
Market Sizing
Unfortunately, there is no ‘one size fits all’ method and the approach needs to be adapted based on the availability of information. There is a wealth of information available for some industries and very little for others. Often the ideal source is simply not available, and a view of the market has to be pieced together and cross referenced using multiple sources including:
Market reports
Proxy indicators
Competitors and sales channels
Customers
Market Size Calculation Methods
Two main methods can be used to calculate market size and a company's accessible market potential:
With both approaches, the estimate becomes more refined as more factors are taken into consideration ,e.g. accounting for differences in purchasing parity, oil component of GDP, local competition and selling prices, market maturity, brand awareness and value etc.
The choice of method is largely dictated by the availability of data, time and budget.
Ideally, both top-down and bottom-up approaches should be used to check the results align.
Accuracy of Market Sizing
Market sizing needs to be approached with the two things in mind:
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