How do you size the market? That’s a question that many marketers grapple with.
Let me clear a few misconceptions first. The size of the market is not what your sales team says it is. It is also not just the sum of sales of all players put together (termed as the Served Available Market). So what is it?
These data points mentioned above are important in determining the size of the market but aren’t the complete market itself.
I define the Market size with the following:
Total Market = Total Available Market (TAM) + Total Unavailable Market (TUM)
I’ll get to the TAM component is just a minute but first wanted to touch upon the TUM part. Most marketers overlook this. So what really is the total unavailable market? This really is about market creation. Customers perhaps don’t know about your product or they don’t know that they need that product. I also call it the invisible market. It’s tough to quantify this segment but it isn’t impossible. And infact can be estimated quite well.
The TAM component is much better understood. It is the current visible market into which the different players are selling. It is growing at the usual market growth rate and is quite predictable. Companies are fighting to win over the consumer and thereby increase their market share.
Here is how I go about doing market sizing for my work:
1. The first step is to define the boundaries of the market you are trying to size. This is critical.
Set the criteria and make sure that you stick to those throughout your research. What to include and what to exclude. Products, services, geographies, customer segments.
2. The approach – Either go top down or bottoms up. Actually it is best to do both and see if you can converge. A triangulation is usually the best mechanism.
Take the example of estimating the size of neonatal CPAP devices in India.
Two Bottoms-up approaches
1. Based on the number of annual births
Starting with the number of annual births in the country = 27MM babies.
4-6% of all neonates require some sort of respiratory support** = 1.35MM babies.
And about 10% of them would require advanced care** (Resuscitation, CPAP, ventilation) = 135000.
Number of babies that can be put on 1 device = 365/4 = 91
(taking 4 days as the average time for which a baby is on CPAP).
So the number of devices to treat 135000 babies = 135000/91 = 1481 units.
2. Based on the number of NICU beds
Total Number of NICU beds in India*** = 26986 (population of India 1.27MM. 1 bed per 1000 live births***)
So CPAP units in operation at any time = 3373. (Roughly 1 in 7 or 8 babies is on CPAP as seen in NICUs)
It’s also important to note that 27MM is the total number of infants born. Of which about 1MM die prematurely in the first few days after birth. These could perhaps have been saved with the right intervention? This is the portion of the iceberg that’s below the water.
Top down approach
3. Take the number of units sold by the top 5 manufacturers (including imports). Sales data estimates this to be around 800-900 units annually. Growing at about 15% every year.
4. Consider the installed base of devices and a replacement cycle (perhaps 3 years).
Doing market estimation from many sources is called triangulation. It helps in improving the accuracy and confidence level of the analysis done. Again, one must remember to rigidly follow the market definition set at the beginning.
**Sources:
http://blog.marketresearch.com/5-steps-to-estimate-market-size
http://www.who.int/medical_devices/Sat_pm_INN_3_MAYNARD.pdf?ua=1
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