Market Sizing Amid Shifting Dynamics

Market Size Analysis

Using Research to Inject Certainty Despite Continued Volatility

By Ken Donaven

NOTE: This is Part 1 of a three-part series on Market Size Analysis. Find Part 2 here and Part 3 here.

Though it might be said that “the worst is behind us,” the post-pandemic era has not been without its volatility. On the heels of lockdowns and economic downturn, new challenges arose almost immediately, including supply chain disruptions, historically high inflation, and workforce disruptions, among other dynamic market forces.

That volatility will likely remain a feature of our global economy in the short term. However, this is not to suggest that all volatility should be considered negative. For example, some industries experienced explosive growth following the downturn post-COVID. Exponential and unexpected market demand is a form of volatility all its own, and in many cases presents distinct challenges, despite what might manifest as welcome rising profits.

As economies shift to respond to dynamic forces at play, so too do markets. Customer preferences change, arise or decline; competitors arrive, shift or disappear; and opportunities either emerge, shift form, or fall to the wayside.

All of this can present as addled confusion, and in some cases can be crippling to business leadership trying to make sense of it all and do its level best to chart the course for the company’s future. When external forces conspire to bring disruption, uncertainty and volatility, Market Size Analysis is among the antidotes that can bring calm, confidence and clarity.

When the Only Constant Is Change…

Whether a company’s sector is growing or contracting, those dynamic forces are bound to have some effect on the business’s present and future growth prospects. This doesn’t necessarily mean a wholly negative impact; it simply means that, left unchecked and fully understood, unknown market headwinds could erode a market leader’s position, while unknown market tailwinds could result in increased competitive density and unrealized potential growth.

Especially in highly volatile times such as those in which we currently live, change can present itself in many forms:

Different Markets = Different Impact 

Which markets and market segments have been positively or negatively impacted by a given event or market force, and what opportunities or challenges does that impact present? Oftentimes, adjacent markets need to be explored to uncover hidden or unconsidered growth opportunities.

Growth Prospects 

Market Size Analysis helps provide an understanding of why some markets or market segments benefit from market change — a key to long-term growth. Perhaps new opportunities have emerged to more deeply or more broadly penetrate a market segment in which the company already competes well.

Market Contractions and Expansions

How much has your market, and those to which you supply, contracted or grown recently? Is a rebound or correction likely? Missing opportunities to fully exploit expanding markets could mean a loss of market share, even with no immediate obvious revenue decline. Over time, that market share loss could manifest as real trouble as current (and new) competitors entrench themselves in your market.

Competitive Situation 

How well-positioned are your competitors? Can you leverage competitive weakness into share gain? Have new competitors emerged to take advantage of new market dynamics? (Many industries are seeing an influx of low-cost offshore products and/or suppliers, which can immediately impact a company’s competitive position in that particular marketplace.)

In consumer markets, which have ready accessibility to point-of-sale data, it is somewhat easier to quickly identify and decipher even rapidly changing market dynamics. But in B2B markets, which often have complex value chains and little, if any, point-of-sale data, understanding those markets is much more challenging.

So how does a company determine the size, share and growth opportunities within a given market or in those adjacent? At Martec, the simple answer to this often complex question is one word…triangulation.

The Importance of Triangulation

Martec employs a triangulated research approach to determine various market insights, such as Market Size Analysis. This encompasses three primary sources of information:

Published Information

The first leg of the triangulation methodology can include a variety of published or available information sources, including multi-client reports, internal sales data, or other existing data sources (warranty registrations, previous survey data, import data, etc.). Most Market Size Analyses begin with an exhaustive review of published articles and reports to provide preliminary intelligence on market changes.

However, published reports can sometimes be highly inaccurate, and the practice of applying an assumed growth rate to research completed several years prior can complicate the process and often distort the results. Due to recent and persistent volatility, most markets have changed significantly in a very short time period and continue to do so. That said, these information sources can still provide a starting point for updating and triangulating market size information.

Bottom-Up Insights

Bottom-up insights can be leveraged to answer the question: “How much was purchased?” Such insights often are captured through a survey of industry participants, including decision makers, purchasers and users of a product or service. The data gathered provide a baseline understanding of purchase incidence, spending, brands purchased, channels used and more.

Survey insights can help answer four key questions about the end-use customer:

  • What? Did you purchase product X? How many did you purchase? This provides an understanding of purchase incidence, which is a key multiplier when building market size from the bottom up.
  • When? When did you last purchase product X? How often do you purchase product X? This also can be a screening question to ensure only recent purchasers are included in the survey.
  • Where? From where did you purchase product X? What percentage of product X purchases are from distributors, retailers, online, etc.? Such intelligence provides an understanding of channel share and channel preferences.
  • Who? What brand of product X did you purchase? What percentage of your product X purchases were brand A, brand B, etc.? Building existing and potential buyer personas should be grounded in real-world data and purchasing activities.

These what, when, where, and who questions can be adapted for large, infrequently purchased capital equipment and small, more frequently purchased products/consumables. 

However, proceed with caution!

We highly recommend not using survey results alone when sizing a market. Surveys provide a significant amount of important data, including who’s in the market (segment), frequency of purchase (incidence), brand awareness/preference, and relative differences by region, segment, customer type, etc. 

But because of the recall-based nature of “bottom-up” insights and the brand halo that can be created by dominant market leaders, understanding market share can be challenging by survey alone. This, again, is why we proscribe triangulation.

(Subsequent articles in this series will take deeper dives into Top-Down Analysis, as well as reasons and methodologies to “proceed with caution,” as briefly discussed above. )

Top-Down Analysis

Top-Down Analysis relies on “The 80-20 Rule.” Many (but not all) markets are characterized by  20% of businesses controlling 80% of the market. We strive to bring those market leaders into the conversation whenever sizing a market. To do so, Martec relies on in-depth qualitative interviews conducted with industry experts and value-chain participants for the specific market or product being evaluated.

These insights provide a high-level understanding of market size, share, dynamics and trends. In our rapidly evolving business environment, expert respondents often have their fingers on the pulse of current market conditions and can provide valuable insights into industry drivers, competitor activities, M&A activity, and overall market conditions.

So What? Now What?

Market sizing is challenging under any circumstances. The uncertainty created by the persistent volatility that has transcended geography and industry sector has served to further complicate these endeavors.

Despite ongoing disruptions and challenges, market volatility can often provide opportunities for companies looking to increase their share, make strategic acquisitions, or expand into new markets or categories. Whether in crisis mode or during stable economic conditions, a fully triangulated market assessment can provide the insights needed to make key strategic decisions and provide valuable intelligence on current and emerging markets.

CONTINUE READING: Part 2 in this series is here, “Market Sizing Using Top-Down Insights.

If you have questions about this or any of the methodologies discussed in this article, contact the author at the address below. Ken Donaven serves as Senior Director with Martec. He can be reached at [email protected].

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