Case Study Market Sizing Analysis

Market sizing can come up as a standalone case or as part of a larger consulting case study

Majority of the consulting interviews will require you to do market sizing

You can be given a market sizing question as a standalone case (though less frequent) or as a part of a broader business situation case like “entering a new market”. Market Sizing can be tricky since there is not one correct answer so be prepared beforehand. In general, the interviewer will be less interested in the number you got for the market compared to the approach you used to get to that number.

This case type is used to test your quantitative and reasoning skills. The interviewer wants to evaluate whether you are comfortable working with numbers and whether you are capable of making good assumptions and handle ambiguity. Market sizing questions are not only about sizing markets but also other types of estimations, for instance, estimating the number of golf balls in a Jumbo.

Ideally your result should be “in the right ballpark”, meaning the answer must not be off by more than 20% compared to the actual answer. But more than the result, the crucial aspects of this problem solving process are the approach you took, the structure you applied and the way you thought about the problem. If you fail to share your approach and the thought process, it is unlikely the interviewer will be able to read your mind or give you a pass for the case interview.

Some examples for market sizing cases are:

  • How many mattresses are sold each year in the US?”
  • How big is the US diapers market?”
  • How many gas stations can be found in Paris?”
  • How big will the market for 3D TVs be?”

Although, some of these questions might seem odd, it’s something consultants are often asked by clients in brainstorming sessions or just out of the blue. Having a structured approach and being able to analyze what the drivers are behind such estimation questions is essential for a useful and convincing response.

While the approach you choose to get to the size of the market is much more important than the result itself, you should still be aware that your interviewer might deliberately give you assumptions that lead to a much higher or smaller market size then what would be reasonable. In this case make an objection saying that the market seems to be much larger/smaller than you would expect. It could be that your Interviewer wants to test your ability to challenge your results (AKA sanity checking).

The challenges in market sizing questions are:

  • To come up with a good structure. See examples in the "Replacement Concept" videos below.
  • To calculate accurately without mixing up numbers. This is especially important if you are given numbers with lots of zeros (e.g. $B and $M).
  • To make assumptions that are as defensible as possible. Only use gut feeling if no other options remain.
  • To be quick and accurate while making calculations.
  • To be concise and not missing any steps of the solution.
  • To present the solution in a client-friendly and understandable way without repeating every step of the calculation.
  • To know if you are in the right ballpark by doing a sanity check at the end.

To master the many challenges of a Market Sizing Case, we strongly recommend you to always use our three golden rules of market sizing discussed below.

The three golden rules of market sizing will help you to structure and present your approach easily, prevent you from making calculation mistakes and check whether you are right in the end.

The three golden rules of market sizing are:

  1. Use a tree to structure the problem.
  2. Find the right tradeoff between accuracy and pragmatism.
  3. Sanity-check your results.

In the following sections, we will look at each of these steps in more detail:

1. Always use an issue tree to structure your problem

In most market sizing cases, the interviewer has no clue what the exact solution is. The final answer does not matter as much as how you got there.

Always draw a calculation tree for the solution of a market sizing case: In the first step, layout your whole structure starting from the top box (your final objective) going down to the leaves (pieces of information that are easier to estimate).

You should go to the second step only after your tree is laid out and has been validated by the interviewer. The second step is when you start making assumptions from the leaves at the bottom and calculating the boxes of your tree towards the top (your final objective).

For example, if the market you are trying to estimate is the number of diapers sold in the US per year, first level assumptions could look something like this:

  • # of babies in the US at a given day multiplied by
  • # of diapers a baby uses per day multiplied by
  • # of days on average in a year

As you can expect, the tree can have a different number of levels for each of its branches. While you will be able to estimate the average number of days in a year fairly accurately, estimating the number of babies in the US might require you to break down this box further.

The following illustration shows how we can draw a tree to estimate how many gas stations can be found in Paris. You can find the entire case here.

Splitting the process in two steps, first structure then calculation, simplifies the problem a lot. Why is that? Because your brain has two separate hemispheres: the right (creative) and the left (rational). While the right side is good at conceptually putting together all the factors that are needed for the estimation, the left side is good at the number crunching.

If you mix up structure and calculations, you will fail to focus on one of the hemispheres at a time and will not use your brain to its full potential. Therefore, first establish and validate a tree structure and only afterwards concentrate on crunching the numbers.

2. Find the trade-off between pragmatism and accuracy

Rounding numbers in a market sizing case is inevitable unless you are a genius or the data is very simple. But do not round them without asking the interviewer if he is fine with it. He might want to assess your accuracy when calculating something.

Always keep an eye on the right balance:

  • Do not round more than 10%.
  • If possible, round some numbers up and some down in order to cancel out your rounding errors.

Make use of averages if you do not have much time left or if the problem is already too complicated. Segment the data otherwise. For example, we took an average of 5 pumps for the Paris gas stations case above. Another option would be to segment gas stations into big, medium and small gas stations in a further tree level.

In case you decide to segment the data, try to come up with 3 segments, as three is the number that people like most. You'll find it in everyday life: First, business, economy class; children, adult, elderly; etc. Also, never forget to be MECE (mutually exclusive and collectively exhaustive) in your segmentation.

A common question for market sizing cases is 'How deep do I have to go for each of the branches?'. As a rule of thumb, you need to go as deep as you need to be able to make only defensible assumptions.

3. Try to do sanity checks along the way and definitely at the end of the case

You might make mistakes throughout a market sizing case. However, with sanity checks, you may be able to detect them in time. For example, when you have to assess the yearly revenues of a company, compare them to the revenues of a competitor with similar size.

Know your facts! This will help you evaluate the correctness of your numbers. If, for instance, your calculation results in 350 million women wearing red pullovers in the USA, you will know that this is impossible because the population of the US is ~300 million.

Check out the 3 golden rules again in the video with new examples:

The replacement concept will help you to estimate numbers that are hard to guesstimate

For some case problems, guesstimating the right numbers is even more complicated if you follow the reasoning induced by the interviewer. If, for example, you had to estimate the amount of babies being born per year, you would likely get into trouble when you reach the stage where you need to define the number of babies being born per woman per year. To avoid these pitfalls, think instead of the big picture. Think about how many years it takes for the population to be replaced. Watch the following videos in order to see the replacement concept applied in practice.

In this first video, PrepLounge's Co-Founder and Expert Fernando demonstrates how to use the replacement concept on the market-sizing case "How many babies are being born per day in the world".

For further practice, Fernando uses the replacement concept on the market-sizing case "How many cars are sold in the US per day".

Finally, see how Fernando applies the replacement concept on a tricky market-sizing case "How many incandescent light bulbs are sold in Germany per year".

Market Sizing – Key takeaways:

  • Quantitative and reasoning skills are the key to success. Train them!
  • Make sure to ask the interviewer if you can round the numerical answers.
  • Estimations off by 20% are good enough.
  • When estimating markets of products that need to be replaced on a regular basis (refrigerators, laptops, cars, light bulbs etc.), use the replacement concept.
  • Always use the three golden rules of market sizing:

1. Always use a tree to structure your problem.

2. Find the trade-off between pragmatism and accuracy.

3. Do sanity checks along the way.

Solve our case nutripremium to practice your market sizing skills.

Prior to market entry, market expansion, new product launch, and planning a marketing budget it becomes critical to assess the total size of the market in revenue or sales terms. More significant than the total market size is the TAM or the total available market - the size of the segment or segments that your business might realistically sell to.

infoAnalytica uses a range of research tactics to provide accurate market sizing research insights.

How infoAnalytica develops a Market Size forecast

The first step is to assess the total size of the offering and industry, including production data of the offerings and industries across a defined period. A market size research provides a clear idea of production, sales, storage, trade, market shares of key competitors and import and export on the select markets. There are several ways to assess market size, and key issues that should be considered include:

  • Identifying existing and potential customers by company demographic, that exist in the market.
  • Identifying competitor offerings and how they may impact your own sales and marketing profitability and channels
  • Identifying bottlenecks to success that could limit the market potential for the offering
  • Considering bandwidth or resource issues such as distribution channel constraints or an insufficient number of salespeople, low marketing budgets, production capacity and so on

infoAnalytica has provided it's customers with detailed and accurate market sizing and forecasting. infoAnalytica has a number of research associates and analysts who are proficient with reliable and valid market sizing.

infoAnalytica's deep insight across the industries it serves, leads to a large number of empanelled experts that give us the crucial answers and data required to perform accurate market sizing studies. At the end of the study, infoAnalytica yields actionable insights on how to improve on estimated results, and key care abouts and pitfalls.

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