Market size is the measurement target of market demand, and market demand is the driving force of market size, and the two complement each other. In marketing, estimating the market size is a very important step, which can help enterprises understand the potential size of the market and provide an important reference for the company's market positioning, product positioning, marketing strategy, etc.
What is the market size?
First of all, let's clarify a concept: what is the size of the market?
Market size, in simple terms, is the total demand of all potential consumers in a market.
For example, let's say there's a market that's about mobile phones. Well, the size of this market is the number of people who want to buy a mobile phone, multiplied by how much each of them is willing to spend on a mobile phone.
Market size = number of potential consumers The average demand per consumer.
This formula seems simple, but it is not an easy task to accurately calculate the size of the market. Because we need to consider a lot of factors, such as:
1.How is the number of potential consumers defined and counted?Is it according to the population, or according to the family, or according to other criteria?
2.How is the average demand per consumer measured?Is it by purchase frequency, by purchase amount, or by other metrics?
3.How are the boundaries of the market divided?Is it by region, by product type, or by other dimensions?
4.How is the time period of the market determined?Is it by year, or by quarter, or by other cycles?
5.How is market data** obtained?Is it through surveys, or through statistics, or through other channels?
As you may have discovered, calculating the size of the market is actually a very complex process that requires a lot of data and analysis. Moreover, different approaches and assumptions may lead to different results. Therefore, when we see the figure of the market size, we must pay attention to the logic and basis behind it, and cannot blindly believe and accept it.
How to calculate the size of the market?
Since calculating the size of the market is a difficult task, do we have an easy and interesting way to estimate and analyze the size of the market?
The answer is yes. This method is called market penetration.
Market penetration refers to the actual number of consumers of a product or service in a market, as a proportion of the number of potential consumers in that market.
Market penetration = actual number of consumers Number of potential consumers.
This formula also seems simple, but it has a big advantage that it can be used to estimate the size of the market.
Assuming that we know the market penetration rate of a market and the actual number of consumers in that market, then we can use the following formula to calculate the number of potential consumers in that market to get the market size.
Number of potential consumers = Actual number of consumers Market penetration.
Market size = number of potential consumers The average demand per consumer.
In this way, we can estimate the size of a market with some easily accessible data without the need for complex data collection and analysis.
Of course, there are some limitations to this approach, such as:
Market penetration is a dynamically changing indicator, which will change with the development of the market and the change of competition. Therefore, when we use market penetration, we should pay attention to its timeliness and applicability.
Market penetration, is a relative indicator, and it will be affected by the definition of the market. Different market segments may lead to different market penetrations. Therefore, when we use market penetration, we should pay attention to its consistency and comparability.
Market penetration is an indicator of probability, which can only reflect the average level of a market, but not the segmentation and differences of a market. Different consumer groups may have different market penetration. Therefore, when we use market penetration, we should pay attention to its precision and refinement.
What is the role of calculating the size of the market?
Finally, we want to answer one of the most important questions: why calculate the size of the market?
Calculating the size of the market has the following functions:
1.Assess the potential and attractiveness of the market. The larger the market size, the stronger the demand in the market, the more opportunities in the market, and the higher the value of the market.
2.Analyze the competition and landscape of the market. The larger the market size, the broader the market space, the more fierce the competition in the market, and the faster the market changes.
3.Develop strategies and objectives for the market. The larger the market size, the more severe the challenges of the market, the higher the risk of the market, and the more stringent the requirements of the market.
4.Optimize marketing and operations in the marketplace. The larger the market size, the more diverse the consumers in the market, the more complex the needs of the market, and the more difficult it is to manage the market.
In conclusion, calculating the size of the market is a very useful tool that can help us better understand and grasp the current situation and future of the market, so as to make more informed decisions and actions.
In short, market size is the total demand of all potential consumers in a market. Calculating the size of the market is a very complex process that requires a lot of data and analysis. However, we can estimate and analyze the market size using a simple and interesting method, which is market penetration. Market penetration refers to the actual number of consumers of a product or service in a market, as a proportion of the number of potential consumers in that market. Calculating the market size helps us to evaluate the potential and attractiveness of the market, analyze the competition and landscape of the market, formulate the strategy and objectives of the market, and optimize the marketing and operation of the market.