Two key questions unlock the door for the strategic plans which marketing directors have to prepare on any product or division within their company. These are:
-where are we going (with the product/division)?
-how are we going to get there?
In order to answer these questions, answers are needed to a host of supplementary questions and, within the “where are we going?” poser, market size is an important component. Knowledge of market size lies at the nub of strategic planning.
Market size solves these strategic questions
-Should we invest in this product/market?
-Should we increase our investment in this product/market?
-Should we decrease our investment in this product/market?
By answering these specific questions
-Is the market big enough to interest us?
-Is the market moving in the right direction?
-Is the market moving fast enough?
-Is the market profitable enough?
Of course, market size alone will not give the red or green light on an investment decision; other research inputs will be needed on the strengths and weaknesses, of the competition, anticipated profit margins and return on capital, etc.
Furthermore, market size is of no benefit in answering the question “how will we get there?” This must be solved by qualitative research designed to show amongst other things, why products are chosen or rejected, how the distribution routes can be penetrated, and which large customers can be won and how?
Before the market researcher decides on the approach to assess market size, a decision must be taken on:
-how accurate the assessment should be
-how fast it is needed
The cost of obtaining the data is, of course, closely linked to both these issues.
THE SPEED with which a study is required is usually self evident. A board meeting or an investment committee is likely to indicate the deadline and the researcher must decide the feasibility of being able to complete by this date.
It is the management sponsoring the study rather than the researcher who must decide on the degree of accuracy required and here common sense is a guide. It may be necessary for example, for management to know, not that a market is worth £85m annually, but simply that it is worth over £50m. It may be enough for them to know that a market falls between the upper and lower estimates of £250m to f350m per annum. Equally, there will be occasion, when high levels of precision are needed, perhaps because the investment is large within the context of the total market.
In general a wide tolerance on market size is permissible under the following conditions:
-when an investment is very small within the total market
-when the study is a preliminary scan of the market
-when the chief objective is to answer the question “how are we going to get there?” rather than “where are we going?”
On the other hand, high levels of accuracy are sometimes necessary where:
-the investment is large within the total market and the investor aims to achieve a significant share within it
-market sizes from different years are needed to show a trend
-it is necessary to split out sub cells of the market which could be attractive targets.
In industrial market research it is seldom possible to state the precise accuracy of a market assessment, because methods of arriving at market size are generally subjective and not derived from statistically valid samples. Realistically, most assessments of industrial market size have a fairly generous tolerance; + 15 to 20 per cent is the norm, while +10 to 15 per cent is quite accurate. Researchers who claim accuracy levels of +5 per cent will in most cases be deluding themselves and their sponsors.
Part 2 of this article will be published on Friday 9th Feb. For more articles visit www.b2binternational.com
This entry was posted
on Wednesday, February 7th, 2007 at 11:06 am and is filed under Industrial Research, Market Assesment, Market Research.
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