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Giulia

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Market sizing: why not always start with population?

Kristian fragte am 6. Okt 2019 - 4 Antworten

Hi all,

I’m practicing market sizing for interviews coming up, and I do not understand why we would not always start with the demand side in regular market sizing? Why would you start with the supply side? That always seem to be more complicated.

Im talking about sizing markets, such as “how big is the market for sunglasses, coffe, sweaters, plane tickets, fuel in a given country». I think it makes sense to start with the population, and then segment that into smaller pieces, by age etc. What do you guys think?

Of course, other guesstimate such as golf balls in planes and similar won’t be solved by this approach, but I’m thinking about regular market sizing.

Would love to hear what you guys think

Best,

A

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Giulia
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antwortete am 6. Okt 2019
Associate at McKinsey & Company|3-year working experience in consulting|Peer Leader Consulting at London Business School
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Hi Kristian,

I usually start from demand side me as well, because I find it more intuitive. Nevertheless, there may be some cases where you have some specific insights about supply and it's easier/most accurate starting from supply side. It really depends on the case. Happy to discuss it further if you have more details.

Hope it helps! :)

Aws
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antwortete am 7. Okt 2019
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Kristian,

Great question.

As a rule of thumb you can use the following approach to determine you use Supply or Demand:

Is the question constrained by demand or supply? This will determine the approach you take.

For example:

Estimate the # of burgers sold in McDonald's via drive through in your city

Here you could think about the population and the number of people eating burgers via McDonalds, but it makes it much more precise if you are able to determine how much 1 McD's can actually sell through a drive through * the utlization rate.

Does this help? Happy to discuss further, drop me note.

Best, Aws

Vlad
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bearbeitete seine Antwort am 7. Okt 2019
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Hi,

You can always start with the population if that seems reasonable. However, some of the cases require a supply-side approach that is more accurate. So there is no population / non-population approach issue at all

TIP - you can have a credit for providing (or at least mentioning) two approaches to the interviewer. E.g. "I can see two ways to structure this case - from the demand side (population) and the supply side (...). I would like to start with the population and then we can triangulate the answer using the supply approach"

Best

(editiert)

Anonym A antwortete am 6. Okt 2019

For me it comes down to the industry/market you're sizing. I tend to use demand side sizing when it comes to markets that don't have obvious supply issues (food, retail, etc.). Since supply generally isn't an issue in developed countries when it comes to general consumer goods, I think a demand approach works better.

However, I think a supply side approach works best on markets that have obvious supply ceilings (transportation like air, train, or bus). There are probably more examples, but those are the most obvious ones. In the air travel case, the market isn't logically determined by demand since no matter how many customers an airport has, they have a limited number of "supplies" to serve them (runways, # of planes, open hours). And ultimately, using a supply side approach for things like this have yielded me more accurate numbers.

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