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Estimate the German boot market

Anonymous A asked on Aug 19, 2018

Dear all,
I wanted to ask where my mistake lies in calculating the German boot market. Is it the structure? Or are the assumptions wrong? This question is part of a large case and thus I tried to keep it simple.

I chose to calculate it by using the replacment method. Personally, I buy boots every three years to replace the old ones and I choose this as an implicit assumption.

My formula:
how many pair of boots are there right now in Germany x 1/Life expectancy of a pair x avg. price for a pair of boots = annual boot sales in Germany

I segmented the amount of pairs of boots in Germany into pairs owned by the female population and vice versa for the male population (assumign females have more boots than men)
Hence: how many pair of boots are there right now in Germany = number of pair of boots owned by female pop. + number of pair of boots owned by male pop.
Then, I calculated for both genders by mutliplying the population for each gender by how many pairs the respective gender on average has.

Assumptions:
- Average price of boots = 100 euro
- Life expectancy of boots = 2 years
- German pop.: 80M
- 50% women, 50 percent men (40 M for each gender)
- pair per man: 1.5
-pair per women: 2.5

My final result is 8 billion euros. However, the actual number is around 5 billions. I'm not in the ball park of 20% and this should be incorrect.

Thanks a lot for your help!!

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Alessandro
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replied on Aug 19, 2018
Bain & Company | University of Cambridge | CV/Resume writing | 770 GMAT
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Your margin of error does not mean you did anything wrong.

You have made severala assumptions, any of which could be inaccurate. Notice I didn't say wrong, because you are not expected to accurately know the (weighted) average price of boots in Germany or the average life expectancy of boots. This can easily account for the level of error in your answer.

If you really wanted to get your answer precise, you would have to look into market research/reports to get more accurate assumptions.

Dom updated his answer on Aug 19, 2018

Hi Anonymous A,

  • I think your assumptions regarding the average price of boots might be off: I quickly checked on Statista the average price for shoes in Germany: For men it is €78.3 and for women it is €66.9 (Source: https://de.statista.com/statistik/daten/studie/291413/umfrage/durchschnittpreis-fuer-ein-paar-schuhe-im-schuhfachhandel-in-deutschland/) If you calculate with those prices (€80 men / €70 women), and following your assumptions (2 year life time etc), I get a market size for the German boot market of €5.9bn, which would be in the in the 20% error margin.
  • However, you could further segment your data into childrens boot in case for further accuracy is needed.

What do you think?

Best,
Dom

(edited)

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