Definition of market size:
It is the total number of customers or potential sales in a certain period. (usually one year) or the total potential income that can be obtained from the sale of products in a specific market. In general, market size is divided into two types: Volume Size and Value Size.
Volume Size means the total number (or weight) of products sold in a certain market., and Value Size means the dollar or real value of the market in question.
How to calculate market size:
Top-down: This approach relies on predictions and guesswork. In this way, through the number of possible customers and the cost of the product., the income obtained from the target market is estimated. For example, if a company providing cosmetic products offers a product worth $2,500 .and the number of beauty salons in the target area is 3,000 salons., the size of the company’s financial market will be $5.7 million. This estimate is based on guesswork because maybe not all members of the target market. are interested in buying the product.
Bottom-up: It involves calculating the market’s size by conducting market research.
value theory: involves considering the value that a brand’s product or service adds compared to alternatives. and estimating how much customers are willing to pay for the additional value
“bottom-up” calculation method:
- Identifying the target market and discovering how to reach them
- Conduct market research through focus groups, interviews, and surveys
- Evaluating potential income: After identifying the target market and conducting a survey, it is possible to predict the potential income from the target market.
Some of the main reasons why size of the market is important are listed below:
- Investment: it is an indication of the potential of any new business., product, or service. For this reason, it guarantees investment.
- Strategy: Knowing the financial size and number of markets. helps determine the future strategy and goals of the brand.
- Budget: Determining the path of growth is effective in the accurate allocation of the budget.
Finally, determining the strategy and budget will help plan for recruitment and future growth of the brand.
why it is important?
One of the key reasons why market size is important. is that it helps businesses identify the potential for growth and profitability. A large market indicates that there is a significant demand for the product or service., which can translate into higher sales and revenue for businesses. On the other hand, a small market may indicate limited growth opportunities. and potential challenges in reaching a sustainable level of sales.
It also plays a crucial role in determining the competitive landscape. A large market may attract more competitors., leading to increased competition and potential pricing pressures. On the other hand, a small one may offer businesses the opportunity. to establish themselves as a dominant player in the market.
Furthermore, understanding the market size is essential for businesses to identify their target audience and develop effective marketing strategies. By knowing the size of the market and the characteristics of the target audience, businesses can tailor their marketing efforts to reach the right customers and maximize their sales potential.
Methods to determine the size :
There are several methods that businesses can use to determine the size. One common approach is to conduct market research and analyze industry reports to gather data on the total demand for the product or service. This can involve surveying potential customers, analyzing sales data, and studying industry trends to estimate the size of the market.
Another approach is to use demographic and economic data to estimate the potential market size. By analyzing factors such as population size, income levels, and consumer behavior, businesses can gain insights into the potential demand for their product or service within a specific geographic area.
In conclusion, the size of the market is a critical factor that businesses must consider when developing their business strategy. By understanding the total demand for their product or service, businesses can make informed decisions about their target audience, pricing strategy, and overall growth potential. Conducting thorough market research and analysis is essential for businesses to accurately estimate the size and position themselves for success in the competitive business landscape.