How to calculate the size of your target market
How to size an emerging market in your business plan.
In developing their professional business plans for companies of all sizes face the challenge of determining the size of their markets To begin, companies must present the size of the relevant market in their plans The relevant market is equal to sales the company if it were to capture 100 its specific niche market has the opposite, indicating that you were competing in the 1 trillion health care market in the United States, for example, is a harbinger of a plan 'poorly substantiated cases because there is no company that could reap $ 1 trillion in sales of health care Defining and communicating a credible relevant market size is much more powerful than presenting the figures for generic industry.
The challenge that many companies face is their inability to size their relevant markets, particularly if they are competing in new or rapidly evolving markets on the one hand, the fact that the markets are new or evolving is the reason why there can be a great opportunity to establish themselves and become the market leader Conversely, investors, shareholders and senior management are often skeptical to invest resources because, since that markets do not exist, the markets may be too small, or not really exist.
Growthink met the design challenge of emerging markets on several occasions and has developed a proprietary method for solving the problem To begin, it is critical to understand why traditional market sizing methodologies are ill-equipped to size emerging markets to illustrate if a research firm were to use traditional methods to size a mature market like the coffee market in the United States, take account of demographic trends such as the aging of baby boomers, trends psycho graphics by such as increased health awareness, trends in past sales and consumption rates, price movements, competitor brand shares and new product development and retail channels including However, the realization of such an analysis for emerging markets is a challenge that many of these factors for example, past sales, customer demographics when he don t there are no current customers as markets are currently untapped.
The methodology required to size these new markets requires two approaches Each approach will yield a different approximation of the potential market size, and often the figures will work together to provide a solid foundation for Growthink market potential calls the first approach peel the onion in this approach, we start with the generic market, for example the coffee market that this company is trying to penetrate and remove pieces of that market that it does not target, for example, if the company has created a machine ultra high-speed coffee retailed for 600, he first reduced market size by factors such as retail channels such mass marketers would not carry the product, the lowest income customer demographic factors would not buy the product, etc. Taking off the generic market, you will eventually be left with only the relevant part of it.
The second method requires the assessment of the market from several angles to approximate the potential market share, answering questions including.
Competitors who is competing for the customer that you will serve; what is in their product pipeline; once you release a product service, how long will take to enter the market, who else may enter the market, etc.
Customers What are the demographics and psychographics of the customers you are targeting; which products currently use are they to make a substitution product of similar needs; how are they currently purchasing these products; what is their degree of loyalty to current providers, etc.
Market factors What other factors exist that will influence the market size - government regulations; market consolidation in related markets, changes in commodity prices, etc.
Case studies What other markets have experienced similar transformations and what the customer adoption rates in those markets, etc.
Although these methods are often more painstaking than traditional techniques of market research, they can be the difference in determining whether your company has the next iPod or the next Edsel.
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