Market Sizing: Sizing New Markets
The future is hazy, please try again.
While market sizing can seem straightforward after everything we’ve discussed, the more interesting markets to size are the ones that don’t yet exist. These are new markets, created by changing consumer needs, technological innovations, or shifts in the availability of resources. New markets lack all of the inputs we used for our previous sizing exercises!
Have no fear, you can still estimate the size of a new market although it will be less accurate. To do so you need to make more aggressive assumptions.
Let us assume Tomatology (our hypothetical on-demand tomato delivery company) runs into hard times as consumers don’t buy tomatoes on demand as much as our estimates would have predicted. So, we come up with a new product called a Tomapple which is a hybrid of a tomato and an apple! But what is the market size for the Tomapple? No one buys them today, so we can’t use the Top-Down or Bottom-Up approaches we used so far.
Or can we?
Even those the Tomapple doesn’t exist yet, consumers buy other food every day. New products are either going to be replacements for existing products or create new demand for something that consumers don’t spend on today. It’s important to know which category your product falls into because sizing is different for each:
- Replacements: Sizing the market for a replacement works exactly the same as sizing for an existing product. You simply size the market for the product you will be replacing and make an assumption about how much of that market you can replace with your new product.
- New Demand: New demand sizing is harder and requires you to understand how much buying power your prospective customers have today and how much is available to spend on something new. This is why new products often target wealthier customer segments as luxury goods (iPhone, Tesla, etc.) because those customers have more buying power and hence the ability to buy something new.
Sizing your market is an important step in understanding the potential of your business and the value you can create. It is also a useful exercise to help you understand the key obstacles you will need to overcome in growing your business. If you come across any problems in sizing your market, just drop me a line!
Quote of the Day: “Even in the future nothing works!” – Darth Helmet in Spaceballs (1987)