Expert case by Clara

Market Sizing: New Startup Launch - Baby Strollers in the US

Market Sizing: New Startup Launch - Baby Strollers in the US Market Sizing: New Startup Launch - Baby Strollers in the US
3.1 5 7
Rating:
3.1 (< 100 ratings)
100+
Times solved
Intermediate
Difficulty
Rating

Problem Definition

In an annual reunion with your MBA colleagues, one of them shares with you an idea of a new venture they have been working on: affordable baby strollers. They have deep experience in puericulture and childcare, and know there is a stable business to tackle.

Given your experience in consulting, they ask for your help in determining the number of baby strollers that are sold yearly in the United States, which they have selected as their beachhead market.

How would you help your colleagues determine the number of baby strollers that are sold yearly in the United States?

Solution

Paragraphs highlighted in green indicate diagrams or tables that shall be shared in the “Case exhibits” section.

Paragraphs highlighted in blue shall be verbally communicated to the interviewee.

Paragraphs highlighted in orange indicate hints for you on how to guide the interviewee through the case.

For these types of market sizing exercises, top-down approaches work best.

There is not just one right solution: there are a number of different ways to arrive to the final number, all of them equally good provided they are well articulated and constructed.

Please find below two different approaches, that illustrate the most frequently used steps when solving market sizing exercises:


Answers to be provided to the candidate upon request:

  • The US has ~330 million inhabitants, that can be rounded to 300 million for simplicity
  • Average life span is ~80 years
  • Average household size in the US is 3 members

Approach 1: Estimation leveraging # of babies born:

  1. Calculate number of babies born every year in the US > 330 M inhabitants / 80 years lifespan = ~4,3M babies.
  2. Calculate number of babies per family > Since the average is 2 children/ family, 50% are first child = ~2,1 M babies are 1st born
  3. Assume that 90% of first children receive a new stroller while only 10% of second, third children receive a new stroller (90% inherit the stroller from the previous child) > ~2,1 stroller
    1. 2,1 M * 0.9 = 1,9 M strollers for first children
    2. 2,1 M * 0.1 = 1,2 M strollers for children who are not first born in the family
  4. BONUS: Average price of 200$ = ~$412 M is the total market (*further break down could be done here for purchasing power of families)

See Graph 1.

Approach 2: Estimation leveraging # of families:

  1. Calculate number of families currently in the US > 330 M inhabitants / 3 people per household = ~110 M families
  2. Calculate how many households are families with children - assume 80% > ~110 M * 0.8 = 88 M families
  3. Calculate how many families buy a stroller - assume 80% > ~88 M * 0.8 = 70.4 M families
  4. Calculate how many strollers are bought per year (since we had the total number of strollers existing in the US) - assume 30 years as the time in which a family buys a stroller > 70.4 M families / 30 = 2.3 M strollers bought yearly
  5. BONUS: Average price of 200$ = ~$470 M is the total market (*further break down could be done here for purchasing power of families)

See Graph 2.

Difficult Questions

Your friends greatly thank you for your help, they really benefited from your back of the envelope calculation. They would like to hear your opinion on the industry attractiveness in general, in order to help them in the go/no go decision of launching their business.

See Graph 3.

Which factors would you look into for assessing the baby stroller industry attractiveness?

Existing rivalry

  • How fragmented industry is in the US currently?
  • Which are the top players and their market share?

Threat of new entrants

  • Our core and moat is high expertise and experience in childcare. However, how easy would it be for other entrants to also penetrate the market?
    • What is the upfront investment?
    • Does it Require previous R&D or specific technology/expertise?

Threat of substitute products

  • Currently, rentals and circular economy have started a big disruption in childcare products:
    • Which % of the market can they capture in the next 3, 5 and 10 years?
    • Are these new models attractive for our target

Bargaining power of suppliers

  • Given that we want to provide a high-quality product with the “made in the US” label:
    • How many suppliers do we have available?
    • Can we vertically integrate some of the production or suppliers?

Bargaining power of customers

  • Who would be your targeted customer (e.g., high purchasing power families, families interested in products locally manufactured, etc.) and what is the key value proposition they are looking for?

Exhibits

Graph 1: Approach 1: Estimation leveraging # of babies born

Graph 2: Approach 2: Estimation leveraging # of families

Graph 3: Industry attractiveness analysis

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100+
Times solved
Intermediate
Difficulty
Do you have questions on this case? Ask our community!

Exhibits

Graph 1: Approach 1: Estimation leveraging # of babies born

Graph 2: Approach 2: Estimation leveraging # of families

Graph 3: Industry attractiveness analysis