How to Size an Emerging Market

In developing their business plans, companies of all sizes face the challenge of determining the size of their markets. To begin, companies must present the size of their "relevant market" in their plans. The relevant market equals the company's sales if it were to capture 100% of its specific niche of the market. Conversely, stating that you were competing in the $1 trillion U.S. healthcare market, for example, is a telltale sign of a poorly reasoned business plan, as there is no company that could reap $1 trillion in healthcare sales. Defining and communicating a credible relevant market size is far more powerful than presenting generic industry figures.

The challenge that many firms face is their inability to size their relevant markets, particularly if they are competing in new or rapidly evolving markets. On one hand, the fact that the markets are new or evolving is the reason why there may be a large opportunity to establish them and become the market leader. Conversely, investors, shareholders and senior management are often skeptical to invest resources because, since the markets do not yet exist, the markets may be too small, or not really exist at all.

In developing over 200 business plans for emerging ventures, venture capital firms, SMEs and Fortune 500 spinouts, Growthink has encountered the challenge of sizing emerging markets numerous times and has developed a proprietary methodology to solve the problem.

To begin, it is critical to understand why traditional market sizing methodologies are ill-equipped to size emerging markets. To illustrate, if a research firm were to use traditional methods to size a mature market such as the coffee market in the United States, it would consider demographic trends (e.g., aging baby boomers), psychographic trends (e.g., increased health consciousness), past sales trends and consumption rates, price movements, competitor brand shares and new product development, and channels/retailers among others. However, conducting such an analysis for emerging markets presents a challenge as several of these factors (e.g., past sales, demographics of the customer when there are no current customers) don't exist because the markets are presently untapped.

The methodology required to size these new markets requires two approaches. Each approach will yield a different approximation of the potential market size, and often the figures will work together to provide a solid foundation for the market's potential. Growthink calls the first approach "peeling back the onion." In this approach, we start with the generic market (e.g., the coffee market) that that company is trying to penetrate, and remove pieces of that market that it will not target.

For instance, if the company created an ultra high-speed coffee maker that retailed for $600, it would initially reduce the market size by factors such as retail channels (e.g., mass marketers would not carry the product), demographic factors (lower income customers would not purchase the product), etc. By peeling back the generic market, you eventually will be left with only the relevant portion of it.

The second methodology requires assessing the market from several angles to approximate the potential market share, answering questions including:

?Competitors: who is competing for the customer that you will be serving; what is in their product pipeline; once you release a product/service, how long will it take them to enter the market, who else may enter the market, etc.

?Customers: what are the demographics and psychographics of the customers you will be targeting; what products are they currently using to fulfill a similar need (substitute products); how are they currently purchasing these products; what is their degree of loyalty to current providers, etc.

?Market factors: what other factors exist that will influence the market size ? government regulations; market consolidation in related markets, price changes for raw materials, etc.

?Case Studies: what other markets have experience similar transformations and what were the customer adoption rates in those markets, etc.

While these methodologies are often more painstaking than traditional market research techniques, they can be the difference in determining whether your company has the next iPod or the next Edsel.

As President of Growthink Business Plans, Dave Lavinsky has helped the company become one of the premier business planning firms. Since its inception, Growthink has developed over 200 business plans. Growthink clients have collectively raised over $750 million in financing, launched numerous new product and service lines and gained competitive advantage and market share.

---

How To Get To The Top of The Marketing Food Chain

Are you tired of living off handouts from big-name marketers,... Read More

Attract Your Dream Customer

Have you clearly defined your target audience? These are the... Read More

Maximize Your Lead Generation Efforts by Recycling Your Leads

The basic lead generation process is pretty much the same... Read More

Educating Your Customers

One of the biggest marketing mistakes businesses make today is... Read More

Produce More Sales from your Email Promotions - Part 2

Do sales come from your ezine regularly? How many well-written... Read More

Mortgage Marketing to Realtors ? Creating a Memorable Positioning Statement

Mortgage marketing to Realtors involves having a crystal clear position... Read More

10 Steps To Getting Paid For Your Marketing Materials

How many times have you heard the same sound bites... Read More

21 Must-Have Web Site Elements

Your Web site should be the cornerstone of your client... Read More

Your REALTOR® Marketing Plan

The steps to creating an effective marketing plan begin with... Read More

Turbo-Charge Your Viral Marketing- Five Easy Ways

The world of marketing has changed. With increasingly better educated... Read More

Assumption Based Marketing Vs. Fact Based Marketing

One of the most common mistakes in marketing is making... Read More

How to Take Your Law Firm to the Next Level

How to Take Your Law Firm to the Next Level... Read More

Tradeshow Booth Cures - Knick-Knack Knockouts

Okay, we were kidding about the smoke, but not about... Read More

Raise Your Income!

How often do you sit around and wonder how to... Read More

What Is Multi-Level And How Should It Be Worked

Multi-level marketing is really a partnership. You go into... Read More

Out of Sight, But Not Out of Mind

What's black and white and read all over? A newsletter... Read More

Winning At Business With Your Marketing Game Plan

Stuart from Colorado had talked to a number of marketing... Read More

My Product is Obviously Better ? Why isn?t it Selling?

The movie, "Field of Dreams" opens with a farmer standing... Read More

If You Can?t Answer This Question Your Business is Doomed!

How do you answer the seemingly easy question, "What do... Read More

Testing Your Way To Prosperity

I have always enjoyed talking to a Realtor friend of... Read More

Turbocharge New Sales with a Marketing Database

What is the most valuable asset your company owns? Inventory?... Read More

Big Ticket Marketing in 28 Minutes

I read an article recently about how many mainstream retail... Read More

The Money Making Secret of The Toll Booth Position

I'm a marketing consultant and at one of my client-companies,... Read More

Pay for Performance Pricing Models for Search Engine Optimization

I do think that it is entirely possible for an... Read More

7 Ways to Evaluate Your Marketing Plan

Business owners often find it difficult to know whether their... Read More

Rules of Thumb for Marketing to Your Past Customers

Keeping in touch can dramatically increase business, when done properly.It's... Read More

Can Message Board Marketing Work For You?

One of the things that makes the Internet fun is... Read More

Trade Show Videos Need to be Planned

A few months ago, we attended the recent Austech 2005... Read More

Direct Mail Personalization

A colleague who does work for a nonprofit organization contacted... Read More

Defining Moment

Do you know your audiences? I mean really know... Read More

How To Choose a Qualitative Research Market

Qualitative research, whether individual interviews, in-homes, focus groups, ethnographies and... Read More

Has the Free Report Had Its Day?

For years now we have been inundated with offers of... Read More

Want to Increase Your Business? First You Need to Understand where You are at!

Are you having trouble understanding basic situational marekting concepts? Then... Read More