Is the market big?

Question

Hi guys, I am a student and just started my prep.

I know how usually I am supposed to get myself the information about market size and growth rate in a market entry case. But how am I going to determinate if the market is "big enough" or if it's growing "fast"? I have seen a walk trhough video in which the interviewee looks at an exhibit and states: market is quite small.

Answer 1

Hi Claudia,

there is one single variable that makes the market big enough or growing fast enough: the goal of the client.

Let’s say for example the goal is to increase revenues by $20M in 2 years, and you are looking to enter a new market. You find that the size of the market is $1B, with no growth for simplicity. Given you would need 2% of the market to reach your goal, from the point of view of the size the market is attractive. However, let’s say that your goal becomes instead reaching $800M in 2 years. The same market is not attractive anymore in terms of size, as you would have to reach 80% market share to meet your goal.

In case a growth rate is present your can follow the exact same approach, calculating the actual dimension of the market by the time you have to reach the goal, and comparing such value with the objective you have to reach.

Hope this helps,

Francesco

Answer 2

Hi Claudia,

"big enough" or "fast enough" are attributes that can only be defined against the prevalent objective. The actual question is:

"Is the market size or growth rate sufficient to reach the objective?"

This objective can either be defined as a clear target value (e.g., "break even within 3 years", or "reach EUR 100 millions in sales by 2022"), or in terms of exceeding opportunity costs (e.g., "we have expanded our production capacity and will expand to a new market if the expected additional profits there exceed the additional profits we would expect if we just pump additional volumes into our existing market").

So in summary, you always need to start your thinking from the objective, and then assess whether the market preferences will allow you to meet this objective.

Cheers, Sidi

Answer 3

Hi,

There are two ways here:

The market is obviously big (Tens of billions USD) or the market is obviously small (<500 Mln USD). However, you should be very careful here since everything is relative and in the case of SMBs (small business) case these numbers are irrelevant
The market is big in comparison to the other markets (e.g. if you have a market entry case and have to choose between several markets)

Best!