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5 Tenets for Conducting a Market Sizing Assessment

Contributors: Mary Trbovich

Market sizing assessments have been the industry-wide standard for shedding clarity on the daunting complexities that arise from exploring new market opportunities. Delving into any new market without first understanding the opportunities, efficiencies, and challenges that cordon it will inevitably lead to erroneous resource allocation and warped strategic decision making.  

In the same way a rock climber must assess the terrain before climbing, market sizing assessments are a necessity to arm clients with the capacity to expertly plan their go-to-market approach and related investments. How can a client tap into a new market without comprehending what the market is? Without accurately conceptualizing market dimensions, any endeavor into potential disruptive innovations or opportunities is a risky gamble.  

Market sizing is a necessary endeavor for market expansion. In our experience, five main tenets have remained imperative to successfully conducting a market sizing assessment. 

5 Tenets for Conducting a Market Sizing Assessment 

1. Ask the Right Questions:

Before undergoing successful market sizing, a sense of what is to be accomplished must be established. Not every assessment will be conducted in an identical manner, as every business will fall privy to individualized constraints dependent on their market. To best link the assessment to a client’s needs, establishing a baseline of questions and objectives relevant to desired accomplishments is necessary. The baseline should then be utilized to conduct interviews with key stakeholders. Stakeholders shouldn’t be notified of the true intentions of the assessment to prevent any unintended biases and confounding variables. As the study proceeds, the baseline can be evolved during later interviews to dispel any further obscurities. Stakeholder interviews are an excellent means to develop hypotheses and serve as a diagnostic of the client’s readiness to market expansion. 

An effective methodology for the coordination of stakeholder interviews is the Voice of the Customer (VOC) assessment. The VOC is a Clarkston methodology that seeks to diagnose enterprise inadequacies via the gaze of the consumer. VOC assessments arm clients with the ability to comprehend who exactly their customer is – be it purchasing behaviors, needs, and qualms. For example, some topics that could be considered include target markets, historical revenues, existing and ideal customer base, resource constraints, and top-down or bottom-up. Successfully conducted interviews will perform as a compass with which to direct the study. By composing effective and informative questions, clients undergoing a market sizing analysis will proceed with much more clarity throughout the process. 

2. Engage and Involve Key Leadership:

In any large-scale analysis or project, leadership involvement is critical. Executives are directly involved in the decisions that comprise of market expansion, and any market sizing assessment must be suitable for their liking. Engaging in assessments without ensuring leadership participation and alignment can derail the assessment entirely. One such method capable of developing leadership buy-in during a market sizing assessment utilizes the maintenance of frequent touch-base sessions with key leadership. Consistently held check-ins and feedback sessions will maximize deadline adherence and minimize incongruencies in communication. If leadership buy-in is achieved, expect to see successful alignment between overall project goals and other key initiatives. 

Those performing a market sizing assessment must also possess a sense of understanding with regard to a client’s organizational hierarchy. Providing enlightenment on this subject will dispel any confusion on the identity of key decision-makers and information brokers.  

3. Focus on Order of Magnitude and Less on Precision:

Rather than striving for precision, focus on the order of magnitude within the market. Projections tend to be exaggerated, as the complexities of socioeconomic factors can’t be adequately analyzed. Furthermore, financial data has become increasingly confidential and monetized. Business expenses have become highly dependent on a company’s corporate strategy rather than industry standards, and many businesses don’t publicly release specific subsets of sales data. Fixating on precise figures can inevitably lead to an increased likelihood of numerical deviations by complicating otherwise typically standard calculations. The overall objective of a market sizing analysis is to assess the viability of a market’s potential rather than creating an exact forecast of the future.  

4. Understand the Business and Market:

Not every business or vertical operates in the same fashion. A particular gross margin in one vertical may be considered as an indicator of a durable competitive advantage, yet in an another vertical may be seen as an unwieldy enterprise. From geographical variances to differences in demographics, distinctions in business and sectors can result in overwhelming dissimilarities in assessing market sizing and earnings potential. For example, the market dynamics of a pharmaceutical company launching a new OTC medication will be radically different than a footwear retailer adding an apparel line. A successful market sizing analysis requires stakeholders to fully comprehend the intricacies of their enterprise and the externalities that influx its market. Dividing a market sizing analysis into multiple strata depending on scenarios, models, and assumptions allows for greater purview into the market horizon. Assessing a market sizing without first understanding the business at hand will only end in erroneous claims and projections.  

One way that Clarkston accounts for the varying assumptions and scenarios between enterprises in a market sizing analysis involves deconstructing market opportunities into three subsections: Total Addressable Market (TAM), Serviceable Addressable Market (SAM), and Serviceable Obtainable Market (SOM).  

  • TAM (Total Addressable Market) projections refer to the encapsulation of the maximum demand for a good or service if every available potential customer’s revenue potential were to be realized. Think of the TAM as all the fish in the sea.
  • If the TAM represents the totality of an entire market, think of the SAM (Serviceable Addressable Market) as the realistic percentage of the market available to the client for market expansion. If the TAM is the totality of the fish in the sea, the SAM is the fish you can reach by fishing from your dock.
  • Development of enterprise capabilities takes time and money to materialize, thus making short-term capture of the SAM very unlikely. The SOM (Serviceable Obtainable Market) seeks to remedy this dilemma by projecting a market share the client can reasonably target during a market launch with its current capabilities and limitations. If the SAM are the fish you can reach from your dock, the SOM are the fish you can catch with the limited baits (resources), time, and energy you possess. 

5. Don’t Be Afraid to Look at Outside Industries:

When analyzing comparable companies for market sizing assessments, it may seem counterproductive to analyze verticals outside your client’s own sector. Yet, as we’ve seen before, the objective of market sizing assessments seeks to encapsulate every possibility a client may achieve via market expansion. Limiting market sizing to singular industries based on previously existing notions on organizational identity creates a warped perspective of the TAM or even SAM available. Potential areas of expansion for a client’s goods and services pipeline can overlap vertically, thus it’s prudent to be industry-agnostic when deriving market research.  

Nvidia’s graphics cards now double as the backbone of 90% of neural networks. McDonald’s has long been the largest toy seller in the world with their famous happy meal accompaniments. Countless precedents exist of companies successfully pivoting into non-traditional industries and expanding their market potential.   

When identifying the viability of a client’s market expansion, Clarkston’s focus lies within deriving a capable strategic plan and recognizing that every avenue must be explored. Furthermore, best practices from enterprises in polar industries may align excellently in terms of strategic fit with your own client and can be imitated when attempting market expansion. On the other side, identical business challenges can arise across industries, and identifying former precedents to solutions from companies that otherwise are dissimilar in nature is a wise tactic. When attempting to establish any measure of change, dissidence is sure to follow. Educating leadership on the logistics behind benchmarking and best practices creates expectation alignment between all stakeholders.  

Maximizing the Calibration of Your Market Sizing Analysis 

Market sizing is an integral aspect of penetrating any new market when expanding your business. However, when done incorrectly, it can lead to inaccurate projections and incongruent objectives. During the conduction of a market sizing assessment, it’s critical to observe these five tenets that will not only maximize the calibration of your market sizing analysis to its intended enterprise, but will also ensure all stakeholders are informed and engaged participants.  

By structuring market sizing assessments around these five tenets, you will also observe a greater aperture into the dynamics of potential market expansion. You can read more about our recent work in this space here, where the Clarkston team was able to provide indispensable insights into the viability of a client’s readiness for expansion into Direct-to-Consumer (DTC) eCommerce.   

To gain a better understanding of your market potential for your portfolio of products and services, reach out to our team at Clarkston today.  

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Contributions from Vinay Vattikuti

Tags: Direct-to-Consumer, Digital Strategy, Customer Experience, Market Sizing, Voice of the Customer