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Market sizing - Luxury market

Market sizing
New answer on Jan 17, 2024
5 Answers
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Stefano asked on Jan 15, 2024

Hi evereyone, 

has anyone ever had a market sizing question question regading the size of the luxury segment? 

let's assume only the fashion segment. 

How would you approach it? 

Would calculating an avg. spend per luxury fashion items per year (with segmentation) be the best approach?

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Edoardo
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updated an answer on Jan 15, 2024
Bain & Co | PE & VC | I helped 50+ professionals to break into consulting and reason on their next career steps!

Honestly this is quite broad of a sizing and not something I usually hear of.

Usually if you are applying to a consulting firm pretty strong on a vertical or if you are interviewing with a partner of a specific vertical (eg a Partner in Luxury) I would first have a look at the latest publication on this  vertical so potentially you could know the answer top down and show that you did your homework (eg Bain releases every year the state of luxury report).

Anyway if I was forced to answer this, I’d try to do it bottom up, reasoning as Price*Quantity split by the top 2-3 luxury categories. So I‘d expect cars, fashion and jewelry.

Then I’d assume per geography and wealth bucket an average spending per person. Without making it too complex but just breaking it down in something like high earners, medium earners, low earners. Then multiply an average spending per category of product by cluster. Of course running a bit of assumptions on spending habit based on personal experience and reference of products you know the price about.

That’s the closest you can get showing a structured reasoning, of course you’ll never land to the right number but that’s the most structured way to approach it in my opinion.

(edited)

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Ian
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updated an answer on Jan 16, 2024
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hey Stefano,

I've market sized pretty much everything at this point!

In general, for consumables, and, especially, something involving high cost, you can often segment by income. Sometimes age makes sense (e.g. a Ferrari). Sometimes income (e.g. Versacci purse).

Remember, segment on the most directly correlated characteristic.

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How to approach market sizing

It's very simple: Do the approach the is the easiest for you given the question.

Are they asking you to estimate something where you don't even know where to begin from the top (maybe you have 0 clue as to the market size of the industry, the GDP of that country, etc. etc.)? Then do bottom-up!

Alternatively, does it seem impossible to do a realistic from-the-ground-up estimation of something (perhaps it requires just far too many steps and assumptions)? Then do top-down!

Fundamentally, you need to take the approach that just makes the most sense in that circumstance. Quickly think about the key assumptions / numbers required and whether you 1) Know them or 2) Can reasonably estimate them. If you can, go ahead!

An Example

He's a Q&A for a great market sizing question here asking to estimate # of electric charging stations in a city in 10 years:

https://www.preplounge.com/en/consulting-forum/how-would-you-solve-this-market-sizing-question-from-roland-berger-7631

This one could be answered top-down (as I did) by estimating population of the city, # of drivers/ cars, etc. etc.

OR, it could be answered bottom-up by estimating # of stations you see per block (or # of gas/petrol tanks), % increase this might be over time (or # of EV stations that would be needed per gas tank given EV stations take 10 times as long), and # of blocks you'd estimate the city to have.

Take a look here for additional practice! https://www.preplounge.com/en/management-consulting-cases/brain-teaser/intermediate/taxis-in-manhattan-market-sizing-229

(edited)

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Cristian
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replied on Jan 16, 2024
#1 rated MBB & McKinsey Coach

Stefano, the way your suggesting could work, but the next step is then to figure out how to estimate the average spend. 

So you're going from one estimating question into another. 

Basically, you should aim to come up with either a top-down or bottom-up approach and work from there. 

Top-down, for instance, you could start from the population and identify the segments that would be acquiring luxury goods, the frequency at which they would do it, the average basket size and so on. 

Sharing with you an article that explains these top-down and bottom-up methodologies. 


Feel free to also suggest some approaches and I'm happy to come back and provide some feedback on them. 

Good luck!
Cristian 

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Florian
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replied on Jan 16, 2024
Highest-rated McKinsey coach (ratings, offers, sessions) | 500+ offers | Author of The 1% & Consulting Career Secrets

Hi there,

That sounds like a normal market sizing question.

I would use a population-based approach. Figure out what parts of the population would buy such items based on income levels, then continue with the approach you mentioned.

Alternatively, you could market size the whole fashion market and then break out the luxury segment (more complex, less direct) but sometimes interviewers ask for more than one approach so it helps to have several in the back of your head.

Cheers,

Florian

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Udayan
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replied on Jan 17, 2024
Top rated Case & PEI coach/Multiple real offers/McKinsey EM in New York /12 years recruiting experience

One simple way is to get the volume for total sales in fashion and take a cut for luxury (top 5% or 10% by volume). Make reasonable assumptions for price and you arrive at the market size

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Edoardo gave the best answer

Edoardo

Bain & Co | PE & VC | I helped 50+ professionals to break into consulting and reason on their next career steps!
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