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Anonymous A
on Feb 08, 2018
Global
I want to receive updates regarding this question via email.

Market sizing - commercial segment often neglected?

Hi,

when doing a market sizing question, most solutions soley rely on households, e.g. when calculating the number of cars/light bulbs sold (https://www.preplounge.com/de/bootcamp.php/case-cracking-toolbox/identify-your-case-type/market-sizing)

But what about the commercial segment? There are company cars and many many commercial buildings, which use light bulbs, as well. How would you approach this? Can you simplify this by saying "I believe there are an additional 10% of company cars" or "For every light bulb in the private segment, there is another one in the commercial one"?

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Top answer
Vlad
Coach
edited on Feb 08, 2018
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

It's neglected only if you decide to neglect it=)

I recommend the following:

  1. Ask the clarifying question first: Are we looking only at the b2c segment or other segments as well. Mentioning this by itself will give you the extra points. In many interviews, the interviewer will allow you to neglect
  2. Make a B2B branch in your analysis. But start analyzing with B2C first since it's easier.
  3. There are many tricks on how to make a B2B calculation approximation depending on the industry. Here are some of them:
  • Personal experience (e.g. when I look on the street, every 10th vehicle is commercial. Thus there are (B2C / 10) commercial vehicles. Now you can calculate commercial gas stations, Tires, etc.)
  • Calculating the space. For example, if you need to calculate the commercial real estate, you can 1) calculate how many buildings you have in the city (using the estimation of what % of the land is occupied by them), 2) subtract the apartment buildings 3) multiply by the number of floors and space. 
  • Calculating the number of businesses: (Working population - % working in public sector) / (SB, Medium, Enterprise split * avg number of employees in each). For each size of the business, you can calculate whatever you want, even light bulbs used.

To give you an example:

Once in the interview, I was Calculating the B2C tire market assuming that the new cars already have tires (sold via B2B channel). E.g. if the avg. lifetime of a car is 10 years, the replacement rate is 1/2 and the replacement rate per car is 4/10, since the first 2 years are covered by the tires from the b2b market.

Calculating b2b market included calculating the tires for the new cars (B2C market of the new cars * (4 tires + 1 extra)) + commercial vehicles * (avg number of tires per commercial vehicle). 

Best

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0 comments
Deleted user
on Feb 09, 2018

Agree, in a lot of interview answers B2B segment is forgotten by the candidate and that can lead to an average performance. I agree with all suggestions below, with one specification: personal experience is ok when is referred to "real world" observations such as 1 in 10 cars I see around is a corporate car. What is definitely not ok is to refer to personal experience in a specific industry/sector to help solve the case (e.g. I worked in lighting industry and I know that commercial segment is 1/5 of consumer one)...that's not the point of the sizing question, the point of the sizing question is to see how you apply logic and perseverance to come up with a guesstimate and what tools would you use it to confirm it in a real case.

hope it helps!

andrea

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Francesco
Coach
on Feb 10, 2018
#1 Coach for Sessions (4.500+) | 1.500+ 5-Star Reviews | Proven Success: ➡ interviewoffers.com | Ex BCG | 10Y+ Coaching

Hi Anonymous,

I agree with the previous comments, however I would suggest not to use personal experience, neither for households nor for the commercial sector, with small samples. Eg, if you have to estimate the number of people playing tennis in the 10-20 year old segment, don’t say “In my high school class, 2 out 24 people played tennis, so I would assume 10% of young people play this sport”. If you do so, the interviewer will likely challenge you with a “What if your sample was not representative” and, given the sample is indeed small, unless you have a relevant backup answer you will lose points.

Best,
Francesco

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Top Answer by
Vlad
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McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School
Related Article
Market Sizing
Questions about market size are frequently asked in case interviews in consulting because they require a blend of logic, mathematics, and common sense. They can be asked as standalone questions or as part of a larger case. Applicants who are familiar with market sizing questions can really perform here. What Are Market Sizing Cases?If you're applying to top consulting firms like McKinsey, BCG, or Bain, you're unlikely to escape a market estimation case. Market sizing cases are considered "back-of-the-envelope" calculations because they can be done on the back of an envelope. Despite the name, it's not just about estimating market sizes; other estimations may also be asked for.For example, if you're discussing a British clothing retailer's growth strategy, you could calculate on an envelope how large the online clothing market is and what percentage of the market the retailer already penetrates. If you perform these calculations quickly, the conversation with the client stays fluid, leaving a good impression.You can receive the question about market size as a standalone case (although this is less common) or as part of a more comprehensive problem, such as market entry. The good news: There's no right or wrong answer when it comes to the question of market size. The interviewer is less concerned about the specific number you come up with for the market than the approach you took to arrive at that number. Why Are Market Sizing Cases Commonly Used in Consulting Interviews?Market Sizing Cases are used to test your quantitative and logical abilities. The interviewer wants to ascertain whether you work well with numbers and if you can make informed assumptions and deal with ambiguities. Questions about market size aren't just about the size of markets; they also involve other types of estimations, such as the number of golf balls in a jumbo jet. As you may have noticed, math is crucial in tackling these questions since you don't have a calculator to rely on. Most importantly, you need to be comfortable dealing with large numbers like millions and billions as well as percentages. More on that later. How Do You Best Approach Market Sizing Cases?Now that we understand the theory behind Market Sizing Cases and their relevance to your case interview, let's take a closer look at the process.Segmentation – The Key to Market Sizing CasesIf you've done some reading on case interviews before delving into market sizing questions, you might have come across areas where segmentation is necessary. Segmenting data is a crucial skill you must master as both a candidate in a case interview and in your later career as a consultant. Segmentation generally refers to dividing a larger whole into smaller parts or segments. The principle you need to understand to do this correctly is the MECE principle.MECE stands for "mutually exclusive, collectively exhaustive." Simply put, segmenting a group of data according to the MECE principle means forming subgroups that do not overlap but collectively cover the entirety of the data, meaning no data is missing. An example useful for market sizing questions is dividing a country's population into age groups (as different age groups often behave differently).Below is a breakdown into Group 1 in the age range 0 to 14, Group 2 in the age range 15 to 64, and Group 3 for everyone over 65: Note that none of the groups overlap, so no age is counted twice, but also no age is overlooked. Now that the population is correctly segmented, we can treat each group differently. If we had divided the population of the United Kingdom into the aforementioned groups, we could estimate clothing expenditures per person in these groups in online retail. Common sense suggests that expenditures per person in the 0-14 age group are lower than in the 15-64 age group. We can justify this estimation by noting that the majority of 0-14-year-olds do not purchase their clothing online. 
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