Market size estimation: current sales
Estimating market size and share is notoriously difficult, especially in markets where a company has no prior experience. However, in existing markets, it is possible to use knowledge of current sales and competitors to build a picture of the market. When addressing a total market, it can be difficult to know where to start, so it is useful to break it down into manageable chunks and take a territory at a time. This analysis will not however identify a potential market not already being serviced by existing products and competitors.
Method
Carefully define the total market
This needs to be considered carefully, to ensure that the right competitive products are considered. Is it the market for razors, electric razors or premium electric razors. It is often better to start with a tight definition, as it is then easier to establish the competitive offerings.
Establish the main geographic territoroes (globally and regionally)
It is easier to make estimations for a smaller territory. It is also easier to sense check those estimations with sales representatives working in those territories. It should also be relatively simple to complete the data for your existing product(s). Taking each territory in turn enables the team to establish which specific pieces of information are not currently know - for example, the sales volume of competitive product X in Territory Y).
Idendify the significant competitive products in each territory
Identify the key competitive products - aim to account for at least 80% of the market with named products. The rest can be identified as 'others'. This restricts the need for endless data on all niche players.
Estimate selling price and number sold for each competitor
Typically, the sales force will be aware if their competitors products are more or less expensive and how many orders have been lost to them. It should be possible to make some estimation of the prices and volume of sales for each main competitor.
Total the value - for each territory and globally
Sum the values and calculate the overall market size and relative market shares of the main competitive products
Re-calculate with 'low' and 'high' estimates
It is often worth doing the exercise again, with both high and low estimates for sales price and volumes of competitive products. This will produce a range of possible values for market size and shares. If the range is large, then specific influencers should be identified
Extrapolate
Based on historic sales trends, it may be possible to extrapolate future sales trends and establish the market growth rate and changes in your relative market share.
Keep up to date
Revise the values frequently, as new data becomes available and to identify any trends
Notes
- For reliable estimations, involvement from all sales territories is essential.
- It helps to be familiar with spreadsheet software.
- Can be dangerous to treat the answer as 'absolute' and is best used to highlight uncertainties and focus further research.
- If kept up to date, the values become increasingly accurate and trend graphs can be plotted
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