Market Reseach — Sizing

Victor Balta
market research — sizing the market

Market Analysis comes at the stage when the product manager tries to understand if the market where s(he) intends to build the product is large enough to sustain the product and to make a profit. The idea is to find if there is a place in the market for the product where one could compete with the current competition by cutting a slice from them, or start something new where you are entirely on your own by starting the business from scratch.

There are two common approaches when it comes to market sizing

  • Top-Down
  • Bottom-Up

The TOP DOWN analysis is determined by taking the size of the total market, then trying estimating your share of that market for your product. It looks something like that: “I have a new camera which I would like to sell in an area(city) inhabited by 600,000 people. I estimate that I can manage to sell that camera to 10% of that population which is 60,000 people, multiplying that by the price of my camera, let’s say it is 100$, we get quite an optimistic number, don’t we? 60,000 x 100$ = 6,000,000$

While it sounds reasonable, it is not the best and respected way to do it as we omit a lot of variables that come in estimation as marketing penetration for example. But for a 60 seconds pitch, it might be just perfect.

The BOTTOM-UP analysis is based on the current trends of the market or based on the current sales of similar products where your goal is to estimate how much of competitor’s sales you can capture. This is the best way to do it, even though it is taking more time and effort.

“We have the same camera, but wait for a minute — What do I need to understand before selling it? Well, let’s try to address some questions that would give us a better understanding.”

  • Where are the cameras usually sold? Is that in electronics shops, major retailers or online? Most likely most of them are sold now online. Therefore you decide to keep your focus in this direction at the moment.
  • Now, where can I sell those? What are the most popular online retailers in your target area? So you do a bit of research by using tools like “SimilarWeb”, “Google Keywords” or listen to social platforms like Facebook, Instagram, Twitter or Reddit and let’s say for your city you found out that eBay is best choice to go at the moment.
  • Then, you need to think about the competition. What are the cameras sold at the moment? You do a bit of research, and you found there is a camera similar to yours for the price of 100$ that has been sold for 30,000 times. You start to think about it “ok, for the same amount of money I can sell a better camera which has more functionalities.” So you narrowed down the market and found out that you could have a revenue of 3,000,000 $ if you make it right.

In reality, it looks much more difficult, but you shouldn’t be scared as every effort is paid accordingly, and while this is a more conservative approach, it gives you better data to operate with and to predict your futures sales.

© 2019 — Victor Balta