As a seller of products, even before you begin your retail operations, it is important to know your market potential. After all, it is only if you know how many people are likely to buy your product that you can plan for your inventory storage and movement. Moreover, if you are seeking or wish to seek investments in the future, you need to be able to talk about your market size, its year-on-year growth potential and therefore your business growth over the next few years.
Apart from the market size itself, studying attributes such as your target demographics, preferences and persona helps you communicate to your consumers in the right way and prompts more people to make a purchase. In other words, sizing up your market is the very first step in any sales and marketing activity.
In this article, we discuss four ways by which you can estimate your market size.
1. Use Public Journals
Using available data on market size and potential is the best way to get started with the estimation process. For one, this data is available online for a small fee so there is no time lag in interviewing people and collating their responses.
Usually, using data from public journals to estimate market potential is considered to provide fast results. However, the results may be relatively lower in accuracy. For example, some sales reports are only compiled annually. So the data you work with may already be a few months old. This method is recommended under one of two circumstances:
- You need a broad estimate of your market potential and wish to understand the rough breakup of the audience
- You need to know whether this product in this market is worth your time.
The Journal Of Common Market Studies is a good online resource to use. You can also use data from blogs and resources that have been developed by market research websites in your industry, or you can use reports compiled by consulting firms. Most of these reports are compiled from actual market data- while they may not be recent, or entirely relevant to your business case- they make a good starting point.
Lastly, don’t forget the reports published by the Statistical agencies. These are often Government-approved and come as accurate as it gets.
2. Conduct A Keyword Search
Here’s a very simple trick to understand the demand for your product in the market- type the keywords into Google Trends. For example, if we wanted to sell CD players, we would type in ‘CD player’ into the search box. These are the results:
Further below this interest chart, you can also see the interest in this product by region. You can also see some other search terms people look for that are relevant to the query ‘CD player’. It is important to zoom out of these results a bit. You may want to look at sales trends over the past five years, just in case they have been on a decline.
Also, a keyword search does not always guarantee that your products have potential, and will therefore sell. For example, you may be selling animal print CD players. If you want to make a product like this work, the story behind the animal prints needs to gain visibility for you to make a sale. For all other intents and purposes, people only ever want a CD player.
Thus, the more targeted towards a niche your product is, the harder it is to use just keyword search to determine your market potential. In such cases, use the keyword search in tandem with the journals and reports, and consider what chunk of your niche market you may be able to target. Be realistic.
3. Benchmark Existing Players
Make a list of all of your direct competitors and study their annual turnover reports. You can usually get these reports through the Governmental body that manages corporate affairs in your state or region. Be sure to collect such reports for all the regions/ countries in which you wish to sell.
The only pitfall here is that very small businesses are often not required to report their turnover. Hence, a major chunk of the sales figure may be lost and you’ll have to hazard a guess.
Sometimes, company interviews and reports may make indirect references to the sales figures, using other metrics instead such as the production capacity and the number of hires year-on-year. It is understood that a good researcher who knows their domain well can extrapolate these statements to come up with the revenue, and therefore the market share of these businesses.
In general, benchmarking is a task best undertaken by the experts. Hire a consultant with a good track record in the domain and access to resources. Also, the accuracy of this method when not followed properly can even fall as low as 30%.
4. Use Group Studies And Surveys
If you are a vendor supplying in bulk, this process becomes relatively easier for you. You just need to speak to a few buyers and understand how they will be estimating their sales. In turn, this can paint a picture of how you must be estimating your market potential.
If you sell a product directly to the end customer, group studies and surveys come into the picture. Such surveys are often only conducted by expert teams. They know the right questions to ask to arrive at quantitative results. Moreover, they have the tools and resources to bring the right target audience into the surveys.
Surveys these days are mostly sent and taken through an online medium such as email. Filtering criteria ensure that only the right people provide their inputs. Usually, conducting surveys and collating data is considered an expensive exercise, but it provides the most accurate results.
If you want to do it on a much smaller scale, you can present your product prototype to groups of people and gauge their responses. This can serve as a starting point. It helps you understand whether your product is indeed interesting and whether you should be investing in professional surveys.
If you are thinking of scaling up your retail operations and investing in logistics to help you, an understanding of the market potential is a necessary first step.