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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:
- Calculate number of babies born every year in the US > 330 M inhabitants / 80 years lifespan = ~4,3M babies.
- Calculate number of babies per family > Since the average is 2 children/ family, 50% are first child = ~2,1 M babies are 1st born
- 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
- 2,1 M * 0.9 = 1,9 M strollers for first children
- 2,1 M * 0.1 = 1,2 M strollers for children who are not first born in the family
- BONUS: Average price of 200$ = ~$412 M is the total market (*further break down could be done here for purchasing power of families)
See Graph 1.
Approach 2: Estimation leveraging # of families:
- Calculate number of families currently in the US > 330 M inhabitants / 3 people per household = ~110 M families
- Calculate how many households are families with children - assume 80% > ~110 M * 0.8 = 88 M families
- Calculate how many families buy a stroller - assume 80% > ~88 M * 0.8 = 70.4 M families
- Calculate how many strollers are bought per year (since we had the total number of strollers existing in the US) - assume 30 years as the time in which a family buys a stroller > 70.4 M families / 30 = 2.3 M strollers bought yearly
- BONUS: Average price of 200$ = ~$470 M is the total market (*further break down could be done here for purchasing power of families)
See Graph 2.