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Market sizing from demand or supply side

Anonymous A asked on Oct 13, 2018

When is it best to approach a market sizing question from the demand side?

When is it best to approach it from the supply side?

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Sidi replied on Oct 14, 2018
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 80+ candidates secure MBB offers
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Rule of thumb: supply side works better in clearly outlined environments (e.g., how many people are served in a coffee shop per year, how many cars are fueled in a gas station, etc.). Nevertheless, your thinking always needs to include the demand side (even if just for validation).

Cheers, Sidi

Elias
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replied on Oct 13, 2018
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Generally speaking, I believe it is better to approach market sizing from the demand side - after all 100% of demand equals the market size. That may not be the case with 100% of supply - that may be a lot more or a lot less than the actual demand for a product.

However, there may be instances, where it would be interesting or sensible to come from the supply side. This may be the case if you want to demonstrate a market opportunity, i.e. "Total supply for left turning widgets is X, but the market potential is actually Y, which is a lot more than X.".

Also in some cases it may simply be easier to calculate, but that's a very weak argument.

Vlad replied on Oct 14, 2018
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Hi,

It's simple:

  • Start with an approach you are more confident about
  • If you know how to do it both ways - mention it to the interviewer: "We can calculate this market both from the supply and the demand sides. Le'ts start with the supply / demand side and later, if we have time, check the answer using another method"

Best

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