Hello,
Is the market sizing solution correct? I do not believe it is considering the alloy wheels that are needed for new cars built, therefore not considering the 20 years car life.
It could be the case that we are not considering wheels on newly built cars because this is not our market, however it is not stated on the case that we only sell direct to consumers and not to companies who build the cars.
Thanks in advance
It is considering the alloys for new cars. Let's look at this part of the solution:
"So over 20 years, out of 100 cars, the number of wheels purchased are:
Let's “translate” these numbers into their meaning:
As such, you can see that this calculation was considering new vechiles.
I hope this clarifies your doubt and was helpful to you.
I see Pedro already gave you an excellent answer.
It's great that you're pushing for clarity. Feel free to bring that free-thinking into the interview as well and challenge some of the assumptions in the case.
Also, if you have your interviews soon, you might find it useful to have this list of common terms that show up:
Best,
Cristian
Pedro gave an excellent explanation here.
Remember that “lifespan” or lifecycle of products i.e. replacement rate is one of multiple methods for market sizing. For more practice consider signing up for this course:
Market Sizing Analysis: Approaches, Techniques, and Exercises
Thanks for your comment but it it still not clear to me as your breakdown does not make sense to me. Those numbers are considering a 20 year span. By your logic, aren't you only considering that cars would change their wheels once in 20 years? While they do it twice? Thanks again
The car lasts 20 years. The wheels last 10 years. So you get one set of wheels with the new car, you replace the set of wheels when the car is 10 years old, and when the car is 20 years old you don't get a new set of wheels... because there's no useful life out of the car anymore. At that moment you buy a new car. So no, they will not change twice the wheels, but only once. If they changed twice, then a wheel would last 20/(1+2)=6.67 years.
(edited)
It makes sense now, thanks!