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A different way of doing market size

Bain case: Asian lubricants producer
New answer on Sep 28, 2020
1 Answer
1.2 k Views
Michael asked on Sep 26, 2020

Hi - I'm wondering about whether my way of calculating market size would be valid on this.

I recieved table one outlining the density, lube consumption and competition which of course has the gap for Germany. I estimated 80 million population and 40 million cars so a car density of 500. All straight forward here.

But then to calculate the market size, I multiplied car density by lube consumption getting 1500/1200/1500 across the bottom of the table and then noted that Turkey is significantly bigger than Germany in population and therefore it has a bigger market. I did not quantify the size of the market at this point (which would be useful for later on in the case probably?) but I did reach the conclusion that Turkey was the favoured market via this route - any problems with this method or things I should be aware of?

Thanks for reading and shoot me a message if you want to practice a case too.

Michael

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Anonymous replied on Sep 28, 2020

The approach seems logical, but has two flaws:

  1. The assumption "Turkey is significantly bigger than Germany" only helps you estimate the market size, because the Lube Consumption per Population (the product of density and consumption) is the same value. If Germany and Turkey had a different value, making a simple assumption on size without executing the calculation doesn't work. When you prepare, prepare for the general case, not the special case that doesn't work in every situation.
  2. The assumption is wrong. In the case, Germany is ~5M people larger. In reality, the difference has shrunk since the case was written, but Germany still has more people. When you make such assumptions, state them explicitly with the interviewer and confirm that it's OK to use them. If you just make them and power through to your conclusion, you'll get to the wrong answer without giving the interviewer the chance to help you course correct.
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