To realize the optimum profit potential of your products and services you need to know the size and characteristics of your potential markets and understand what trends are shaping the development of those markets which assists in prioritizing the opportunities.
A market sizing study forms part of your overall market analysis – which in turn forms the basis for your marketing plan. Establishing the size then shape, characteristics, and direction of a targeted market enable you to:
- identify key objectives
- set realistic targets
- prioritize potential markets
- plan your sales and marketing activity
- tailor your actions according to characteristics and trends of particular market groups
- maximize revenue and profit potential – make your marketing spend effective.
It can help to keep the cost of the exercise down by use of desk research (secondary research) initially but the source of information is of key importance. It is good practice to check what has already been researched so as not to reinvent the wheel. Even in a new market, there is very rarely no data available. Gathering opinions from industry experts, business libraries, trade associations and other published data such as major market player financial reports establishes the value of information available. To support the desk research talk to other vendors, the industry experts you have determined, journalists, the channel etc – test the hypotheses developed from the desk research. The more one explores the hypotheses, the more clarity is obtained.
On the other hand, available secondary research is often out of date, incorrect or sometimes deliberately misleading. It is worth checking, but it is rare to find exactly the information that is required. Primary research is then required, whenever budget permits, to gain more accurate data, this would involve:
- defining the “universe” in which your market exists and then identifying a number of those companies to which your product or service could be relevant
- interviewing a sample from these to assess the potential penetration of the product or service and identify key players already present in that market
- using these figures to estimate the total market size – your addressable market
- researching shifts in behaviors and attitudes among key market players across time to identify various movement trends
- establishing predicted growth rates
- identifying any relevant regulatory factors.
When looking at your existing customers and researching new potential opportunities, analyzing changes in the market is important, this can often give indications of the new opportunities and threats. Trends should be assessed both geographically and by industry.