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Market sizing for raincoats

Alan asked on Jul 18, 2019

How would you estimate the market size (dollars) for raincoat in a particular city?

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Ashwin
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replied on Jul 18, 2019
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3 Meetings

7 Q&A Upvotes

USD 109 / Coaching

Let's try to estimate this for the city of London

I start with formulating the approach in the form of an equation

Step 1: Raincoat market size ($) = City population(#) * (% of pop. that feels the need for a raincoat) * (Avg number of raincoats owned) *(1/Life of a raincoat in years) * (Avg. price of raincoat in $)

Step 2: Input my assumptions

London city population - ~10M
% of pop. that feels the need for a raincoat - Since London has high rainfall, I will assume a large % of the population would buy raincoats (~80%)
Avg number of raincoats owned - I would assume ~2 considering high rainfall in London
Life of raincoat - ~4 years
Avg. price of a raincoat - ~$50

Step 3 - Calculate using my assumptions
Market size ($) = $200M

Step 4 - Do a sanity check
Dividing $200M by the population of London (10M) gives $20 which means each person in London spends on average $20/year on raincoat purchase. This does not seem far fetched.

Conclude - Considering my assumptions, the market size for raincoats in the city of London should be in the vicinity of ~$200M

How come you divide by the "life of a raincoat in years"? I would assume the shorter the lifetime of a coat the more they need to be sold, therefore larger market size. — Anonymous A on Jul 19, 2019 (edited)

As you say "shorter the lifetime of a coat more they need to be sold" - for this to happen you should be dividing the lifetime of coat — Ashwin on Jul 19, 2019

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Market Sizing Cases are used to test your quantitative and reasoning skills. The interviewer evaluates your structure, numbers-handling and business sense.

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