Strategic Purpose Of Market Sizing

By M. Isi Eromosele

The correct way to estimate market size depends on four different perspectives of market data. The first examines demand; the second defines the "addressable market." Following that is analysis of the realistic opportunities for competition, and finally a targeted selection of "winnable" market opportunities.

One of the first steps to a market opportunity analysis is to size the market. How big the market is is a simple enough question but the answer is more complicated that it appears.

You typically should look at market size in four different ways. The first is what is called the “demand determinant market” or the market of overall demand that will dictate the size of the addressable target market.

Within the addressable market, you need to be realistic about where your company can realistically compete today in terms of existing capabilities and capacity. A larger portion of the market may be feasible later after making investments in capital equipment, personnel, or expertise, but for now, they may not be not “viable” opportunities.

Finally, you should get to a full competitive analysis to estimate the market share that can be captured in the near term or the “winnable” market opportunity. Ultimately, all this must be in the context of the industry environment.

You cannot address the target market without first determining the potential it presents. The market demand would be the Demand Determinant Market which defines the overall market opportunity.

In many cases, you would need to go one step higher and examine the overall economic environment to make an informed prediction about the demand determinant market. Often, this involves a sensitivity analysis of the demand determinant market assuming various scenarios in the economic environment.

The addressable market is further defined by gaining perspective on market size and potential through the eyes of customers and competitors and suppliers of adjacent product and solutions.

It is also calibrated by looking at alternative as well as substitute solutions. When this process if fully vetted, you can say we have defined the “addressable” market or the total market opportunity for your company.

This step is even more involved when you are introducing a new product or solution. In that case, you need to determine the delta increase in value created by your new product or solution over the existing status quo of the industry.

Then, make some educated assumptions about the utility that customers would perceive from this value and be either willing to pay a premium for or switch from existing products. In effect with a new product, you are hoping to create a new demand that will grow the overall market or cannibalize part of the existing market.

You need to be realistic about which portions of the addressable market we can compete in today. Due to capacity constraints, capability limitations, specialized expertise, or lack of human or other resources, chances are the entire addressable market may not be within your immediate reach.

You might decide that due to economies of scope, you would not address international markets initially but only the U.S. Such decisions define the viable market - that portion of the market in which you can realistically compete in the near term.

Finally, you must conduct an honest assessment of the competitive environments to determine what portion of the viable market you can realistically expect to capture. This is where the voice of the customer and competitive intelligence come into play.

It is ultimately about your ability to craft a compelling value proposition and deliver that value effectively and competitively. But in order to make key business investment decisions, you must first be able to estimate that success in order to be able to calculate a return on investment.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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