Sizing the market and market share

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Question: Is it easy to calculate the size of my market?

Answer: That depends on whether you are prepared to accept a standard definition of your market, and how well tracked that market is by market research firms (usually a function of how many major players there are in that market who are willing to pay for ongoing market size tracking research). If you are in a standard, high profile market, you can buy the data off the shelf. However, in most markets you will need to find a smart way of calculating it, or to invest in expensive tracking research

Key points

Market sizing is always a question of definition. You can have 10% of the market or 90%, depending on how broadly or narrowly you define the market. General Electric has the rule that if you have over 40% of the market, you should redefine it until you have only 10%. Microsoft argued in 1999 that it did not have a dominant share of the market for computer operating systems, but a tiny share of the overall computer software market.

The calculation of potential market size will therefore first depend on your definition and then on the market situation:

Published reports

1. Where the market is well established and reported upon - usually a large market with many multinational competitors e.g. the computer industry, the automotive market, photography, "white" goods, "brown" goods etc. - then it is largely a question of identifying the source that you find most trustworthy. This type of data is relatively cheap but may lack the level of sub-categorisation you require.

Trade audits and triangulation

2. Where the market is well-established but there is no published information, there are two main techniques you can use:

• The most reliable is to buy trade audit data, should they exist. In larger markets, there are often several agencies running trade audits which work by obtaining data (increasingly Electronic Point of Sale EPOS data) from large wholesalers/distributors/ retailers) and by surveying a sample of the smaller ones. EPOS data tend to be very accurate. "Grossing up" from a representative sample of smaller distributors/retailers will inevitably be less accurate.
• If no trade audits are available, the cheapest one-off approach is to commission an agency to use a "triangulation" technique. Triangulation techniques work by asking different manufacturers, channel members and industry experts what they believe the market to be worth, and reaching a triangulation point with which most people are comfortable given the evidence available. This technique is less accurate than a trade audit and not very statistically reliable.
• The least reliable technique, and an expensive one, is to conduct market research across a sample of the customer base. This can work where there is a broad equality of buying power (as in consumer markets) and very large sample sizes, or where only two or three customers dominate the market (as in some business-to-business markets), but it is only indicative at best in most business-to-business markets which lie in-between these two extremes.

New markets

3. Where the market does not exist until you invent it, you can calculate your new market opportunity from the following formula:

the total universe (the maximum number of people who could possibly use the product/service)

x ("times")

the % of the universe who will become aware of the existence of your product/service

x

% who will trial the product

x

the number of units on average they will trial

x

the average trial unit price

+ ("plus")

the total universe (the maximum number of people who could possibly use the product/service)

x

the % of the universe who will become aware of the existence of your product/service

x

% of people who will re-purchase the product/service

x

the number of units they will buy a year

x

the average unit price

x

discount for the people who cannot find the product/service through distribution channels

x

discount for the % of people who will cease to buy that product/service category that year

This formula (or a more scientific version of it) is used by many of the world's market research agencies to calculate the potential for a new product or service. The first two steps are the most critical - how many people will need to become aware of your product or service, and how much money/ingenuity do you have to reach them before a competitor does?

A simplified version of the tool, called the NPD First Year Growth Calculator is available for sale here.

We can help you in two ways - we have a mass of smart strategic brand marketing tools, processes and workshop techniques for you to use, and a mass of smart brand marketing agencies as members across the world with niche knowledge and experience to support you thereafter.

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