Hello,
I have the following questions regarding market sizing:
1. Is there a specific “template” or a process/approach how to make best sanity checks?
2. Should I do a sanity check for the overall market size I calculated or should I also do sanity checks for other parts?
3. I typically start by first explaining the entire structure top down and then I say now lets solve the tree bottom up, I first focus on XYZ. Here I assume that … -→ is this a correct approach?
4. Is there a “nice way” to make assumptions? For example, I say, speaking from personal experience I buy product X Y times per year… How are you making assumptions?
5. Is there a specific or generic base structure to stucture market sizing questions and how to segment?
6. In market sizing do we assume that there is a single price for a product? Or that there are, for example, various bottle sizes that have different costs (if we look at the market for disinfection liquids)?
Thanks for helping.
Market Sizing questions
Hi there,
Market sizing is a fun exercise and provides insights on how a candidate breaks down a problem into solvable parts and makes educated guesses. Regarding your questions
1. I don't think there's a standard template, but for the sake of completeness, there're 3 components you can check: 1) the assumptions, 2) the math, 3) the result. You asked about 1, so I'll explain in answer to the 4th question. For 2, it seems trivial, but people do make mistakes on calculation.
For the result, there're also different ways to check: 1) common sense, 2) transform into something that you can apply common sense on, 3) use a different estimation to triangulate.
2. You should do sanity check on the result. To make sure the result is correct, you need to check the inputs or say, assumptions (and don't forget the math).
3. Starting the structure top-down is the right approach, but suddenly turning into bottom-up could make people confused. Although it is not clear how you actually do it, but it is easier for the interviewer to follow if you say “x = y * z * t, let's start with y, to get y, it takes u / w, and I assume… then let's tackle z…”.
4. Using personal experience is nothing wrong, especially when you're estimating something related with consumer goods. But do note the caveat that your personal experience may not be representative. And before making assumptions, ask the interviewer whether there's an input available, or you need to make such assumption.
5. If there must be one structure that are applicable to most cases, it should be the concept of funnel. Another key concept is replacement. No need to worry about frameworks / structures, try a few sizing exercises you'll find it's not that difficult :)
There's also no single segmentation method, in real cases we choose among multiple segmentations, and we have more time and support. In interviews, the key is to speak out loud on the most influential variables that you're not taking into the calculation (e.g., for such product, purchase frequency is a big factor but not in the equation). It is more about your thinking.
6. In real projects, we do consider different price bands. In interviews, it depends. It is nice that you bring out to the interviewer that you've noticed a big differences in price, and you're going to segment based upon it. But it is also acceptable that you say something like “though there's a difference in price, for the simplicity, I just assume an average price, do that sound ok for you? Or if we need a more refined estimation?”
Hi there,
1. Not really. You need to think about if the final number is in the right ballpark, if the assumptions seem reasonable, and what lever you could change to improve the accuracy of your outcome. You should also check the correctness of your calculations
2. Do it as you move through your individual parts and at the end
3. Sounds good to me!
4. Depends on the case. This works for consumer goods but what if you are asked to estimate aircraft orders? Probably not something you would consider purchasing. In this case, you need to a. use different assumptions, e.g., through analogies or b. come up with a smart way to calculate it (e.g., via demand for air travel). Overall, how you come up with assumptions depends mainly on the situation and context → business sense
5. You could go top-down or bottom-up, think about supply vs. demand, etc. but the overall approach depends on the context and should be tailored
6. You can segment or create an average. Depends on how granular the interviewer wants you to analyze the situation.
Cheers,
Florian
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