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.

---

Effective Lead Generation

How to Gain your Prospective Clients' Attention and Generate the... Read More

The Secret to 100% Success With Your Marketing

There's a secret to marketing, which is so simple, yet... Read More

You Must Get Going If You Want To Get Growing

For many of service-based businesses out there, it's not that... Read More

Focus...a Marketing Strategy

The secret to increasing sales doesn't lie in choosing just... Read More

Stop Searching - Joint Ventures are the Solution to Doubling Your Business

First, define the end user (or ideal client) of your... Read More

Should You Clap For Your Customers?

Does it make sense to clap for your customers? It... Read More

When The Stars Align - Choosing the Right Entertainment

Savvy event producers follow the Golden Rule: know thy audience.... Read More

Avoid the Duds: 10 Strategies for Selecting The Perfect Speaker

Today, more than ever, the success of meetings relies heavily... Read More

Mortgage Originator Marketing ? Differentiate or Die

One of the best ways to attract more clients is... Read More

Have You Captured Me Today?

There are many Web sites I visit every day and... Read More

A Great Marketing Model ? Utilizing the Power of OPM

Staying ahead of the marketing curve seems to be a... Read More

How to Measure the Benefit Your Product or Service Offers

Measuring the benefit of your product or service means putting... Read More

Mortgage Marketing - How to Write a Mortgage Marketing Sales Letter That Gets Results!

Have you ever sat down to write a sales letter... Read More

Forward Thinkers Stay Ahead of the Curve

What is it like from a marketing perspective to be... Read More

Do You Really Know Your Prospect?

I'd like to introduce you to someone. I don't actually... Read More

Are You Attracting or Repelling Prospects?

There are basically two ways in which you can either... Read More

Marketings Nuclear Weapon

Three seconds. That's what you have to convey your message.... Read More

Marketing Strategy - Getting the Marketing Groove

Wouldn't it be great to have a year where your... Read More

Viral Marketing with a Powerful Twist

What would you do with 500, 1000 or more additional... Read More

Corporate Cleavage

I enjoy cleavage as much or even more than the... Read More

Using a Contact List Profitably- Part Two

Besides a survey, your contact list can be used to... Read More

How To Let Your Customers Search For YOU! ? Part 2

First I want to welcome you to part two of... Read More

Basic Brand Building

A brand is the essence of who you are. The... Read More

Trade Show Promotional Products ? Boosting Booth Traffic

I was about seven or eight years old when I... Read More

There?s More to Marketing ROI (return on investment) Than Meets the Eye

All too often people look at marketing ROI in terms... Read More

Packaging Trends You Cannot Overlook (Part #2)

Part #26) Food safety is becoming paramount.What this means to... Read More

When, Why, and How to Use Mailing Lists

Mailing lists may be the cause of more heartbreaks than... Read More

4 Sales Strategies with Your Trade Show Exhibition Booth

Trade show booths can act as an excellent source for... Read More

How To Market Effectively Even If No One Understands What You Do

So how do you effectively market your product or service... Read More

The Surprise Inside!

Think about all those Cracker Jacks you ate as a... Read More

Ready, Fire, Aim!

You probably read my headline and thought, wait a minute,... Read More

How to Avoid the Line Extension Trap

If you follow the prevailing logic of most modern companies,... Read More

Second Dose Of Marketing Vitamins

Organizations often get stuck in neutral when it comes to... Read More