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Market Sizing: Volume Versus Value

estimate estimation estimation market sizing estimations Market sizing market sizing assumptions Market Sizing Beginner Level
New answer on Apr 09, 2024
3 Answers
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Anonymous A asked on Apr 09, 2024

Hi,

 

How is approaching market sizing in volume is different from in value? Please provide me with further explanation regarding the steps that will help me solve the question. 

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Pedro
Expert
updated an answer on Apr 09, 2024
Bain | Roland Berger | EY-Parthenon | Mentoring Approach | 30% off first 10 sessions in May| Market Sizing | DARDEN MBA

Depends on pricing structure:

  • If there's only one price, then it's just multiplying the volume by the price. Done. 
  • If there are multiple prices, then you have to find a way to multiply those prices by their respective volumes. In most cases, it will be a price that corresponds to a segment, and therefore it is quite direct. But it may be different.

Let's say you have to estimate the movie theater's revenue. You may consider an average ticket price… or you may consider different prices for kids / seniors vs. adults. So you have to estimate the number of tickets for kids vs. adults, and then apply the different prices. 

If you think about cars volume, it's not difficult to estimate how many cars are sold every year. But if it is by value then you need to segment according to price (compact, mid-size, full-size) and estimate the number of cars sold, and then multiply by the respective price.

In short: if it is a “commodity” with a single price (or it is sensible to use an “average” price), just multiply by price; if there is price differentiation, (in general) you need to estimate volumes according to respective prices. 

(edited)

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Niklas
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replied on Apr 09, 2024
McKinsey Jr. Engagement Manager | Interviewer at McK| Coached numerous candidates to secure MBB offers | University of Oxford

Hi, thanks for the question!

The difference is: 

Volume = # Units

Value = # Units multiplied by Price/Unit

 

Example (I'm making up those numbers): market for cars

Market size in terms of volume: 1 Million cars sold per year 

Price per car: EUR50.000

Market size in terms of value: 1 Million * 50.000 = 50.000.000.000 EUR

Hope this helps!

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Cristian
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Content Creator
replied on Apr 09, 2024
#1 rated MBB & McKinsey Coach
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Pedro gave the best answer

Pedro

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