Faced with economic uncertainties, unpredictable consumer behaviour and high business costs there is ever-growing pressure on commercial decision-making. Well-known brands continue to fail – Body Shop and Ted Baker representing the latest in a succession of companies to go into administration in early 2024 – and businesses recognise they have to innovate to survive, but how?
In a time of unprecedented events, businesses are increasingly recognising the value of data-driven decision-making. The derisking of critical decisions through projection and modelling makes strong economic sense. Market sizing provides quantifiable insights that enable businesses to make informed strategic decisions, allocate resources effectively and maximise ROI. No wonder it’s increasingly favoured as an approach.
Here at Mobas, we recognised this shift and now offer market sizing as part of our actionable insight offer. A recent example saw Mobas appointed to help a healthcare organisation develop a new brand proposition. A fundamental element was market sizing, to help them determine the size of the market for their existing and potential new services. The results revealed a set of clearly prioritised opportunities, with potential revenue values attached.
So, what is market sizing – a valid question due to the number of conflicting definitions – why is it important to businesses and, crucially, what kind of approaches might deliver results?
What is market sizing?
Quite often the terms ‘market size’ and ‘market value’ are used interchangeably by commentators. However, there are key differences to make between these two terms.
Market sizing is typically focused on the total potential demand for a product or service. This number usually calculates the number of potential customers for your product and/or service. More technically, it’s the total number of potential customers or sales in a given period (usually annually) or the total potential revenue you might be able to reach in that period.
Market value refers to the financial worth or estimated market capitalisation of a company or industry. It’s a measure of perceived value. It can provide the leadership team of a business with an idea of how much they could sell for in a given market.
Why is market sizing important to businesses?
Based on the market sizing briefs Mobas has worked on, there are often several key reasons why businesses are increasingly investing in market sizing, including:
- Market sizing helps businesses identify and scope opportunities for growth and estimate the return they will receive.
- Market sizing helps businesses to understand the potential for a new product / service and therefore whether it’s a worthy investment.
- Market sizing gives clarity as to competitive share of a market and also the potential to grow share.
- Market sizing enables businesses to truly understand who they’re marketing to and what the needs of their customers are.
Ultimately though, market sizing helps businesses minimise the risk attached to their decision-making, helping them to understand their market, anticipate future challenges and model the impact of major investment.
Not all market sizing projects are the same, and Mobas has a number of proven approaches for calculating market size
There are three key methodologies recognised for calculating market size:
- Top-down
- This approach relies on predictions, forecasts, and assumptions about the market. It’s ultimately based on speculative estimates.
- Bottom-up
- This involves ensuring you start with your price and how many units you can realistically expect to sell. How many customers a business can reach and how much is each sale, otherwise known as the Serviceable Obtainable Market (SOM).
- Value theory
- The final approach is generally considered to be less precise but can still be very useful. It involves considering the value a business’s product or service adds when compared to alternatives and estimating how much customers would be prepared to pay for that extra value.
Based on the client brief, we propose the best approach to meet their needs. The most common approach we’ve used thus far is the bottom-up approach. This approach results in working out the SOM, through a formulaic approach, and calculating first the Total Addressable Market (TAM) and then the Serviceable Addressable Market (SAM). This approach has ultimately enabled Mobas to forecast penetration rates for our clients’ services.
The demand for market sizing is clearly on the increase. If you’d like to learn more about how the Mobas methodologies could help with identifying the market for your future products or services, please get in touch with Dr Matthew Higgs at matthew.higgs@mobas.com
