Friends, hi.
could, please, someone elaborate on how to tackle the case with market sizing. I was asked this question by the partner from BCG and I think I failed since I was not able to ask 'smart' questions on how I will deal with this case. I think the case was devised by the partner based on his project experience: he asked about the market size of potatoes in country X.
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Hi there,
Interesting case, let me give you my 2cents:
Preliminary questions:
- By market sizing are we focusing on volume or $?
- How big is the Pop. in Country X?
- Is there any special consumer behavior in this country or can I assume regular consumption (i.e. my own Country)
- Is it ok to assume the market will just be regarding for human consumption?
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Approach:
I'm going to estimate the average consumption per person and then multiply by #Pop. X. There are several ways to estimate it but this sounds the fastest one.
There are 2 big meals per day (Lunch/Dinner);
I'm going to assume I have one meal containing potatoes for every 3 meals (I'm saying this because people eat more rice and pasta in my country when compared to potatoes, however, this can change for this particular country);
I'm going to assume 200g of potato consumption per potato meal. This will equate to a mid size portion of potatoes;
Meals per year = 365x2=730 meals which 1/3 is with potatoes = 240 meals; each with 200g of potatoes = 48 kilos of potatoes per person
(Quick Sanity check: In my family of 4 I usually bring a new 40-50kg bag of potatoes every 3-4 months so 48kg per person surely seems reasonable)
I'm going to assume Population of Country X is 10M for simplicity if we don't have any data.
Market Size = 10M x 48 kg = 480,000 tons
--
I actually after doing the math went to check statistics and all these numbers make perfect sense.
--
Overall:
numbers here are not important, what is important is:
Ask necessary questions to reduce scope and to cancel any misinterpretations;
Take time and draw a framework that can solve problem;
Add numbers to the framework using reasoning and your own experiences;
When obtaining numbers always check if said numbers make sense;
Present final value and add some final conclusions if pertinent.
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Every market sizing has a different approach, so what you need to focus on is how to find the right variables to fit into a generic formula. Over the years, I have developed the following trick to frame my market-sizing thesis:
Market Size of product/service [x] (in USDs/yr) = Number of total $user_units in Market * %age qualified for product[x] * $frequency of use / yr * $units_used per use * price per use.
You can use this formula to solve almost all market sizing questions. You need to focus on what the $user_unit is, what is an appropriate %age is, and what is the $frequency $units and $price per use is.
E.g. (1): potato
Assuming market is USA. Start with total $user_units. Here users may be households. So 400M people / 4people per house == 100M household == $user_units.
Next, %age qualified == assume 100% of houses eat potatoes (something that may change for meat etc)
Next frequency of use == assume daily for meals (we can add 10-20% on top for stuff like potato chips etc)
Next units per use == 4 potatoes per day
Price = 1$ per potato.. I am just making stuff up here.
== 100M * 100% * 365 times per day * 4 potatoes per day * 0.25$ per potato == $36.5B/yr market
If this seems too big, too small etc then consult the interviewer for a "smell test" -- maybe re-eval your "4 potatoes a day" to 2.. that'll bring market to 18.25B/yr..
@hemant, i get a difference answer=100M*1*365days/year* 4 potatoes/day *1usd/potatoes=146B. Did you mean 1usd/houseuse or 1usd/potatoe? Nonetheless great explaination.
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Nuno,