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Building a Market Model and Market Sizing

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This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go …

This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here:
http://flevy.com/browse/business-document/market-sizing-101-376

A key choice in any business strategy is 'where to play'. This understanding the market that the business chooses to compete in with a clear understanding of key customer, geographies, products, growth, value, competitors and shares etc.

A fundamental requirement for any market assessment is the ability to 'size' the market to help a business understand and make choices on the dynamics and drivers mentioned before.

Market sizing is an art - being a mixture of hard data and subjective inputs and having a clear methodology is an essential requirement to ensure these elements are managed correctly.

This powerpoint document is a Market Sizing 101 for those interested in developing a basic framework and methodology to build their skills upon.

Published in Business , Economy & Finance
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  • 1. CONTENTS 1. Objectives of Market Sizing 2. Approach to Market Sizing 3. Drawing conclusions from Market Sizing
  • 2. CONTENTS 1. Objectives of Market Sizing 2. Approach to Market Sizing 3. Drawing conclusions from Market Sizing
  • 3. 2. APPROACH TO MARKET SIZING 0 1 2 3 4 Step0. Understand the issue Situation Complication Seek consensus about understanding of situation • Business contemplates entering market “X” • Business does not understand the competitive positioning within the market Overriding Question Answer • In which segment should we invest? Brainstorming is a key step • What is the answer? How can we answer this? • What do we need to know to answer this question? Develop hypothesis 5
  • 4. 2. APPROACH TO MARKET SIZING 0 1 2 3 4 Step1. Gather available sources - Estimate rough size of the market Example of common approaches • Top-down Client volume divided by its market share e.g. 9000 units sales per year / 30% market share = Assumption Bottom up • Population, penetration or usage, life cycle, # of outlets e.g. 500 stores in the country X $1M average sales per year = 8milion households X 50% penetration X 1unit per household X 10 year product life = Report There is no rule which method you should use and usually you should use at least 2 or 3 methods and triangulate the figures. 5
  • 5. 2. APPROACH TO MARKET SIZING 0 1 2 3 4 Step2. Decide the relevant details A. Relevant Segments B. Time Period C. Data detail required • Product (Category) • Historical • Market Volume • Channel • Forecast • Market Retail Sales Value (RSV) • Customer • Market Wholesale Value (NSV) • Geography • Market Profit (GM, EBIT, EBITDA) • Player Review point • • • • • • • Strategic view MECE Large volume or value Fast growing Relative strength M&A target Data availability Segments must meet certain fundamental requirements: relevance, measurability, accessibility, substantiality and durability. 5
  • 6. 2. APPROACH TO MARKET SIZING 0 1 2 3 4 Step2. Decide the relevant details A. Relevant Segments B. Time Period C. Data detail required • Product (Category) • Historical • Market Volume • Channel • Forecast • Market Retail Sales Value (RSV) • Customer • Market Wholesale Value (NSV) • Geography • Market Profit (GM, EBIT, EBITDA) • Player • Data availability • Internal request Historical should be long enough to capture trends (i.e. 3-5 years) Forecast should be in line with strategic plans 5
  • 7. 2. APPROACH TO MARKET SIZING 0 1 2 3 Step3. Build the framework and structure the model - Excel provides a central point in which raw and derived data can be integrated into a single model ‘What-if’ results Step0. Question Distribution of outcomes Step1. Sources Integrated Excel Model Step2. Structure Revised analysis and data requirements Optimal actions Confirmed/rejected hypotheses 4 5
  • 8. 2. APPROACH TO MARKET SIZING 0 1 2 3 4 5 Step3. Build the framework and structure the model –Example for beverage company current market share X G&P • What is the key data? • Is it included? • Is it available? 1 2 3 XYZ Market Total Market Volume Share Volume by Segment AC Nielsen XYZ Financial Volume divided by Example 4 RSV$/L XYZ Financial Volume divided by AC Nielsen Interviews Market research Licens ed AC Nielsen Interviews Market research 1 AC Nielsen XYZ Financial Volume divided by 1 XYZ Financial Volume divided by Total Market Value (RSV) 6 Retailer Margin 7 Total Market Value (NSV) AC Nielsen 2 X 3 AC Nielsen RSV$/L vs. XYZ NSV$/L XYZ Financial NSV AC Nielsen XYZ NSV$/L applied by Retailer Margin 2 X 3 AC Nielsen RSV$/L vs. XYZ NSV$/L Interviews XYZ Financial NSV AC Nielsen XYZ NSV$/L applied by Retailer Margin 2 x AC Nielsen RSV$/L vs. XYZ NSV$/L Interviews XYZ Financial NSV 4divided by 1 AC Nielsen applied by XYZ volume coverage AC Nielsen RSV$/L vs. XYZ NSV$/L XYZ Financial NSV AC Nielsen XYZ NSV$/L applied by Retailer Margin 2 x AC Nielsen RSV$/L vs. XYZ NSV$/L Interviews XYZ Financial NSV AC Nielsen XYZ NSV$/L applied by Retailer Margin 2 x AC Nielsen RSV$/L vs. XYZ NSV$/L Interviews XYZ Financial NSV 1 IC 5 3 4X 4X 4X (1 – 5 ) (1 – 5 ) (1 – 5 ) NC% & Total Market NC XYZ Financial Interviews XYZ Financial Interviews XYZ Financial Interviews Y G&P 1 IC Licens ed Suppor t AC Nielsen Interviews Market research AC Nielsen Interviews Market research XYZ Financial Volume divided by 1 XYZ Financial Volume divided by 1 Euromonitor Canadean 3 3 Euromonitor 4X 4X 4X (1 – 5 ) (1 – 5 ) (1 – 5 ) XYZ Financial Interviews XYZ Financial Interviews XYZ Financial Interviews Competitor Financial Key data for sizing (higher confidence level)
  • 9. 2. APPROACH TO MARKET SIZING 0 1 2 3 4 5 Step3. Market sizing methodology – Growth example beverage company Example 1 X G&P IC Licen sed Total Market Volume growth by Segment Growth from 2 2 Total Market Volume by year XYZ Financial Volume divided by 3 1 3 Volume share change AC Nielsen 4 Total Market Volume by manufacturer 2 X 3 5 7 6 Total Market Value & Share by year RSV$/L Change AC Nielsen Price change Retailer Margin by year 4X 5 1- XYZ RSV from 6 / XYZ financial NSV applied on 2007 Market Volume AC Nielsen Interviews 2 X 3 AC Nielsen Mixed Business Price change 4X 5 Interviews XYZ volume growth 1 applied on 2007 Market Volume AC Nielsen Interviews 2 X 3 AC Nielsen Mixed Business Price change 4X 5 Growth from 2 AC Nielsen 20042006 XYZ Financial divided by 2 2 X 3 AC Nielsen Price change 2005 from 2006-07 Change 4X 5 Interviews XYZ volume growth XYZ historical change to Competitors Y G&P IC Interviews XYZ volume growth Licen sed Interviews XYZ volume growth Supp ort XYZ Financial Volume changes are very different from AC Nielsen (Different Mkt growth) 1 applied on 2007 Market Volume AC Nielsen Interviews 2 X 3 applied on 2007 Market Volume AC Nielsen Interviews 2 X 3 Euromonitor & Canadean Volume Growth 2% Redbook Factbook Competitor Financial growth 1 AC Nielsen Service Station Price change & Off Premise Price change 2005 from 2006-07 Change 4X 5 1- XYZ RSV from 6 / XYZ financial NSV XYZ historical change to Competitors 4X 5 Due to high fluctuations in XYZ NSV by segment, Retailer margin was adjusted to avoid same fluctuations in RSV market Key data for sizing (higher confidence level)
  • 10. CONTENTS 1. Objectives of Market Sizing 2. Approach to Market Sizing 3. Drawing conclusions from Market Sizing