Alle Fragen zum Tag Market sizing - Consulting Q&A - PrepLounge.com

Hi,

I may be misreading, but I think you made a major mistake here: Ventilators are used primarily for life support, not for people with respiratory issues.

I.e. lots of people have asthma (repsiratory problem), but an inhaler is more than sufficient for the vast majority.

Just like in a case, you need to make sure you understand the question. Clarify your assumptions about what a ventilator is and who would need it before jumping into the sizing blindly.

Hi,

For market sizing questions the following 3 aspects are important:

• State your approach: Which approach would you take? For example top-down approach, bottom-up approach, demand side, supply side etc.
• Sensitivity check: What are the parameters that significantly influence your result?
• Sense check: Conduct another approach, or even a third approach (often not necessary, but state this because you would do this in a real case!) and triangulate around your results

In general – and I am sure you know that – the result of your approach is much less important than you approach! Hence, use the opportunity to show that you can see the bigger picture but also consider the details and that you are structured in your approach.

Also: Do communicate with your interviewer!

Now, how could you structure your approach using a demand side framework?

• Start with the population of LA. Assume 8m inhabitants. Ask for a better number and use it if nothing else is provided.
• Assume a life expectance of 80 years and assume a uniform population distribution. Given these assumptions, there would be 1m people per 10 year age bucket (do use numbers that are easy to work with, especially in situations under stress)
• Assume bike penetrations (percentage of population that would use a bike):
  • Age bucket 11-20: 5% --> 1m x 5% = 50k bikers
  • Age bucket: 21-30: 10% --> 1m x 10% = 100k biker
  • Age bucket 31-40: 5% --> 1m x 5% = 50k bikers
  • Hence, there are 200k “would-be” bikers in total.
  • Comment: For simplicity, assume 0% for the other age buckets. Ask the interviewer if you should be more specific – if so, make assumptions for the other age buckets as well.
• Assume that for each age bucket (note: simplification!), 80% of those who would use a bike own their own bike and 20% do not own a bike. Hence:
  • 200k “would-be” bikers x 20% = 40k bikers that do not own a bike
• Assume that for each age bucket (note again: simplification!), 50% of those bikers who do not own their own bike would indeed pay for renting a bike. Hence:
  • 40k bikers without own bike x 50% = 20k bikers who do not own their own bike but are willing to pay for renting a bike
• Assume that all of these bikers are served with an average capacity utilization of 20% (do ask for a better number!). Hence:
  • 20k bikers who do not own their own bike but are willing to pay for renting a bike x 20% = 4k rental bikes

Now, in reality you would (and so you should do in an interview) sensitivity and sense check your numbers! In a sensitivity check, you would discuss with the interviewer what you think are the parameters that drove your result, e.g. is it realistic that there are no bikers aged 41-50 that would rent bikes? Probably not, so state again, that this is just a simplification. In a sense check, you would conduct a totally other approach, e.g. a supply side approach or try to get reference numbers from public registers, insurance registers etc.

Remember that the result is much less important than your approach! The interviewer wants to see that you think in a structured way about problems and he wants to be confident that you can easily replicate these results! Therefore, it is important that you communicate with your interviewer and let him participate in your approach. If you are given the problem, take 10 minutes without talking with the interviewer and then state the correct number you will not pass the interview.

I have more market sizing cases available and am happy to coach.

Hope this helps.

Best regards

Hi,

You still have an objective - calculate the number of X. That's how you start:

1. Our objective was to calculate the number of x
2. Based on our analysis it will be Y
3. There is a number of drivers that influence that number: a,b,c
4. Additionally, if we had more time we can calculate more precisely... / we can make a sanity check / we can calculate from the supply side and triangulate

Best

Hi!

You'll really get the best out of this exercise if you try it yourself. Why don't you post what you're thinking and we can help?

Hint: What's the lifecycle of a cow?

Hey Ana-Maria,

Let's hear from you first and we can provide feedback!

To start, do you think it makes more sense to do top-down (i.e. # of people in the country, # married, divorce rate, and so on) or bottom-up (i.e I know x people married, x divorced, in x demographic, and extrapolate)?

Hi,
you do that like any other market sizing question. The idea is to find the number of potential customers for the whole market.

One way to do it is to look at the number of flights per year. First of all, it would be good to understand if the question is related to a specific country or not as you need to start with a population number. Then you could think of how many flights does an average person take per year. Let's say an average person take 2 flights per year. Then you would need to estimate how many people on a plane carry devices with WiFi-connectivity. Let's say 80 per cent of passengers (alternatively, break that down again; to estimate the number of WiFi devices use the replacement concept (every three years a person buys a new smartphone on average etc.)).

The market would have a size of:
Percentage of WiFi Users * Population * Number of flights per person, for the US that would be 0.8*320M * 2 = 512M

In the end, you may propose some options of how to actually charge customers for this service. Of course, you can always add some more features to your estimates.

There you go!
Best,
Daniel

Hi Cristinia,

Tough one indeed. What about looking at it as a % of the economy? Start with the US, think about its size (18-20 trillion), then look at tech sector % of that, then estimated cloud-based data storage % of tech sector. Then, look at ROW by type (Europe/developed, Asia/developing) and think about their relative size and % tech compared to US..

I am not 100% about this, curious to hear feedback:

[Pop US] * [1/people per household ] * [# rooms per household] * [light bulbs per household] = # light bulbs in the US. Let's assume another 25-50% for businesses.

Once we have the # of light bulbs, we need to give out how many are on in any given time. Let's assume a standard distribution across the day and say that 6 hours out of 24 hours the bulbs are on.

We have [# of lightbulbs US] * [6/24] = # lightbulbs that are on per hour.

@ Others: would this work?

The proposed solution 4k hotel rooms in Singapore is absolutely ridiculous. Nothing more to add. Either you misunderstood the question/setting/information, or the RB interviewer doesn't know what she is talking about.

Maybe it was a test to see how you react to "guidance" that is clearly off the mark - but this would be quite weird in my view.

This is just strange...

Cheers, Sidi

The very simple answer to your question is "YES IT IS VERY IMPORTANT"

You even can face a market sizing question as your overall case interview at any round.

Cheers

Serhat

I would use the population although it will be very sensitive to many assumptions.
It looks very difficult to make meaningful assumptions in terms of land size.

Cheers
Serhat

Hi,

You can calculate the # of stores per average block and #of blocks in Tokyo (Area of Tokyo / avg size of the block

Best!

The way I would do it is:

Start by total population then segment it into high income, medium income and low income. Following that assume a frequency of restaurant visits per income level. Then you need to look at the capacity per restaurant. I am guessing you could do that by estimating an average of maximum guests per hour that can fit then split the working hours into peak and off peak. Then assume a utilization % in eachc ase. Example:80% peak and 40% off peak. Now you have the total capacity per restaurant per day.

Divide demand by capacity you get the total number.

This is definitely a top-down (as opposed to bottom-up) sizing.First, I'll assume homo sapiens.

There's a lot of ways to approach this, but I would personally segment it by world population over time. I know that population growth is exponential, and I roughly know the population in different periods - however I have to be careful to account for "existence" i.e. birth/generations.

A lifespan is around 70, but I'll round down to 50 (which averages out across all of time).

• I know there's about 7 billion people today.
• Going back 50 years (1960s) there were around 4 billion.
• 50 years again (1910s) that was around 2 billion
• Now I'll keep that # but double the count to 100 years (in 1800s, 2 billion people). I.e. population was around a billion, but lets count it twice to account for births.
• In 1700s, down to 1 billion (again, population of around 500 million?)
• And I'll keep this 500 million x 7 down to the 1st millenium (3.5 billion).
• Now, I'll drop it to mellenium, and keep 500 million down to when "civilization" emerged, around 4,000 BC. So, 500 million X 5 = 2.5 billion.
• Then, we're into an extremely long tail for hundreds of thousands of years but very low population, so I'll throw in another 500 million.

If I were to draw this on a chart, it'd be exponential, so I'd a least be comfortable with that.

I'll add 7+4+2+2+3.5+2.5+.5 = 31 Billion people.

However, I know that, for most of history, death rates were absolutely horrid and that something like 50% of all people died before the age of 7. So, I'll multiply 31 billion by 1.5 to get the answer: 46.5 billion people have existed in the world.

Am I close?

Let us consider the city of Coimbatore, Tamil Nadu, India for our calculation.Coimbatore has a total population of 10,50,721 people. Then approximately it will be about 2,62,681 households. Since Coimbatore is one of the urbanised households in India. Since it is also called the Manchester of South India. Food delivery service is a huge market here.The city has a huge amount of people with upper middleclass and rich background.

It is hard to figure out the exact percentage of upper middle class and rich in india since only about 3% of Indians pay income tax and file their tax returns. Since Coimbatore is one of the urbanised centres , the number of people who are ready to afford food delivery is quite high than the national average. Already few industries are doing fine including SWIGGY which was loaunched recently. Many Restaurents already have their own Food Delivery Service. Since the many companies like Uber have already launched apps to place orders the competition is going to be fierce.

Considering 30% of the population come under affordable/willing category a little larger than the national average, we get 78,804 households. Eliminating various constraints such as Restaurents, Traditional Hotels, Various other conventional competitions it would be like 60% of the households who will be willing. Then we get 47,282 households. Considering on average they order once a month for average of Rs.1,750 then, The market size would be 5,67,384 deliveries a year, thats 1,554 deliveries per day.

Your approach looks consistent. The critical point in this problem is estimating penetration in 2040. It is all about which drivers you are providing while you are assuming % of people reading news online vs offline.

- maybe paper usage for newspapers will be 100% banned due to environmental reasons?

- maybe it will be very expensive due to the decreasing number of demand and only very rich people will have this.

etc...

So it is not possible to make a perfect estimation about the last ratio but it is possible to discuss creative and important drivers...

Hope it helps

Best

Serhat

Hi Rami,

We are happy to help with feedback, but we need your best approach first

Best

Hi! Try to be as pragmatic as possible.

1. Estimate average distance per usage --> assume the same probability for each level, hence 100 metres on average --> double the distance because the elevator needs to get back to the ground floor --> 200m per usage

2. Estimate number of usages per day --> here you need to consider number of elevators in the building and different times of the day (heavy usage in the morning and evening, medium usage mid day, very low usage at night)

3. Multiply 1 with 2 to get the total meters per day.

Cheers, Sidi

Hi,

Here is how you can improve your math skills:

1) Fast math - train, train, and train again

• Learn how to multiply double digit numbers (https://www.youtube.com/watch?v=6ndkkPZYJHo)
• Learn the division table up to 1/11 (i.e. 5/6 = 83.3)
• Learn how to work with zeros (Hint: 4000000 = 4*10ˆ6)
• Use math tools (Mimir math for iOS), Math tool on Preplounge website to practice

2) Quant part of the case

• Simply download all casebooks available online and go through all cases. Pls disregard the structuring part and just practice the quant part. The number of distinct math tasks types is not infinite and you can train all of them

3) Critical Reasoning (for PST)

• GMAT test CR and IR parts (Official guide and Manhattan prep)
• Mckinsey practice tests
• PST like tests from the web

4) Working with tables and graphs and deriving conclusions

• Study "Say it with Charts" book
• Check all available MBB presentations and publications. Practice to derive conclusions and check yourself with the actual ones from the article/presentation
• GMAT IR part (Official guide and Manhattan prep)
• Learn basic statistics (Any GMAT or MBA prep guides)

5) Case math

Practice common market sizing topics (Airport passenger flow, real estate volumes, subway passenger flows, car usage, etc.). You should become comfortable with making assumptions

Learn key financial topics (P&L and balance sheet and how to analyze them, Basic Valuation principles via NPV and comps) and case math:

• Interest rates calculations
• Compound margin
• NPV using the Rule of 72, Perpetuity
• CAGR using the Rule of 72
• Currencies exchange calculations
• Speed, time, distance calculations
• Equations, systems of equations
• Ratio & Proportions
• Solving the problems by calculating the area of the triangle
• Profit / breakeven formula
• Correlations, outliers (being able to spot on the graphs, tables)

Good luck with your interviews!