Market Sizing Q

Market sizing
New answer on Jul 01, 2020
5 Answers
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Anonymous A asked on Jun 29, 2020

Hi!
How to calculate number of users of internet at this moment?

Thank you

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Anton
Expert
updated an answer on Jun 30, 2020
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Hi,

I would suggest that you should present your own approach and I would be happy to review.

Meanwhile please see below my approach to segmentation in market sizing as well as examples of solved cases:

B2C:
- Demographics (Age, education, income, family size, race, gender, occupation, nationality)
- Behavioral (Purchasing behavior, customer journey stage, occasion & timing,
customer loyalty & interest, risk tolerance, user status)
- Psychographic (Lifestyle, personality traits, values, opinions, interests of consumers)
- Geographic (Geographical boundaries)

B2B:
- Company characteristics (Industry, company size, number of employees)
- Geography (Geographical boundaries)
- Purchasing Approach (Occasion & timing, customer capabilities, nature of existing relationship)
- Personal Characteristics (Loyalty, risk attitude, user status)

B2G:
- Demographics (Type of agency, size of budget, the amount of autonomy)
- Geographic (Geographical boundaries)
- Government Tier (Federal , State, Local, Quasi-governmental, International)
- Bid type (Closed, Open)

But sometimes you don’t need to segmentation. Here is an example of case that could be solved with high level top down approach - estimate the size of credit card market in the US:

In this case you should follow demand-driven approach to market sizing. By market size I would assume value of credit card debt in the U.S. (not the number of Credit Cards issued).

First of all you can start by outlying an algorithm which would consist of 3 big steps:

1. Total addressable market

X

2. Product penetration

X

3. Average ticket size

Now let’s see how to calculate each of these blocks:

1) Total addressable market = US population X % bankable population

2) Product penetration = number of credit cards per capita in US X % of active cards

3) Average ticket size = average credit card limit X %limit usage

  • average credit card limit is usually estimated though debt-to-income ratio. In case of credit cards it is 5 monthly salaries on average
  • limit usage could be derived from your personal experience but on average it is 20%

Let’s plug-in the data:

1. Total addressable market = 330 mln x 80% bankable population = 264 mln

X

2. Product penetration = 2 X 50%

X

3. Average ticket size = 4k USD X 5 X 20% = 4k USD

Thus credit card market size is 264 mln X 1 X 4k USD ~ 1tn USD

Let’s double check with official statistics. STATISTA.COM provides the following data: Value of credit card debt in the U.S is 0,93 tr USD. Thus our answer is super close

You can also make your calculations a bit more sophisticated if you add segments (e.g. by income or credit score). In this case you would have to provide detailed assumptions on product penetration and average ticket size for each segment.

As for the sources for your assumptions you can use:

  • Input from interviewer, well known facts
  • Statistical data
  • Personal experience, e.g. from casual everyday situations
  • Workplace experience, e.g. from working on projects in the industry
  • An educated guess

Best,

Anton

(edited)

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Clara
Expert
Content Creator
replied on Jun 29, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

As a general rule, is best for you to give it a try and ask for the communities feedback later, is much more insightful!

In any case, I would calculate:

  • Total internet users arround the globe
    • Ditinguishing between developped and developping countries
  • Total number of hours a person uses it
  • THen we adjust it for the time frame, since "at this moment" can mean second, minute, hour... and this is something that we should clarify.

Hope it helps!

Cheers,

Clara

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Udayan
Expert
Content Creator
replied on Jun 29, 2020
Top rated MBB coach with many offers /Ex McKinsey EM in New York /6 years McKinsey recruiting experience/Real cases

Hi,

A slightly alternate approach below :

- Number of people with access to internet (% of global population)

- Places where most people are currently awake, and their population

- Assumption on their internet use (e.g, 80% probability of people using the internet in some form (mobile, netflix, work, shopping etc. from 9-7)

- You could vary that number by region if you want to be more detailed - e.g., Korea will have a higher internet use than Indonesia etc.

Now its just a matter of multiplying it all out

Best,

Udayan

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Anonymous replied on Jun 29, 2020

I would assume

  • Total number of internet users
  • Average usage frequency (daily, weekly, monthly)
  • Average connection time (in minutes)
  • You will have average number of users / minute

Best

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Ian
Expert
Content Creator
replied on Jul 01, 2020
BCG | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi there,

Very clear top-down sizing :)

1) World population

2) Population across continents

3) % of population in each continent with internet access (of course, remove those <10 years old etc)

4) Avg hours of usage across each continent (perhaps split by young, middle-aged, and old)

5) Divide by hours in the day

6) Do a weighted average to see how many active at any given time

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Anton gave the best answer

Anton

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