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.

---

Calling All Carbon-Based Lifeforms

Many businesses want to market to all carbon-based life forms.... Read More

Have You Captured Me Today?

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

Promotional Bags: Your Company Details on Parade

The trick to a good promotion is to attach your... Read More

The YOU Factor

I don't mean you, I mean the YOU that is... Read More

Multicultural Marketing ? Taking Care of Business At Hand

Multicultural marketing mirrors the changed face of America and is... Read More

How to Connect Features and Values

"Buy this magazine or we'll shoot the dog," went a... Read More

Ready, Aim, Fire...Oops...Wheres The Target?

Everywhere you go on the Internet you find the words,... Read More

Packaging Trends You Cannot Overlook (part #1):

1) People are buying in smaller quantities. Our busy lifestyle... Read More

Postcard Direct Mail Marketing Tips And Ideas

Postcards are perhaps the least expensive way of reaching a... Read More

Spike TV - Know Your Audience

What do Klingons, giant rubber bands, and monster trucks all... Read More

What to Look for in Display Graphics and Trade Show Graphics

Display graphics are graphic images used for illustration or "display"... Read More

Have Something Good To Say

If you don't get this right, you can just forget... 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

Eliminate Your Competitors With 2 Simple Steps

In business, having competitors goes with the territory. There's almost... Read More

Powerful Direct Marketing Numbers

Direct Marketing works!Why? It works because it's personal. It carries... Read More

Global Market in the Cyber world?Go and Get It !

With the Internet opening up the doorway to the global... Read More

Five Steps to a Web Site That Sells

I'm always amazed that people would spend months to develop... Read More

4 Steps to Successful Offline Event Booths

A great way to gain more local sales is to... Read More

GoogSpy: Business Counter Intelligence for Everyone

So, you want to know what your competitors are up... Read More

Marketing 101: The Power of Marketing

When you hear the word "marketing" what comes to mind?... Read More

7 Ways a Copywriter Can Help Your Business Succeed

Think you can't afford to hire a copywriter? Think again.... Read More

How to Size an Emerging Market

In developing their business plans, companies of all sizes face... Read More

Marketing Secrets #101- Your Most Important Sale

Which sale is the most important one you will ever... Read More

Marketing as a Spiritual Practice II: Unearthing Your Potential

Marketing as we know it is over. Done. Finito.People the... Read More

Using Business and Greeting Cards Effectively

Business cards and greeting cards almost go hand in hand... Read More