Sizing the market and marketcrafting

Market size is the denominator of market share. Without a defensible estimate, managers cannot judge competitive position reliably or use portfolio tools such as the Growth/Share Matrix with confidence.

When to use it

• Use marketcrafting or another market-sizing method when no adequate third-party estimate exists and the organisation must construct a market view from primary evidence and informed assumptions.

Origins

Market sizing combines longstanding top-down and bottom-up research practices. Marketcrafting is the competitor-based version described here: it was developed in consulting work for niche and under-researched markets where managers knew the customers and competitors well but lacked a dependable estimate of total demand.

What it is

Size matters because share, growth and competitive movement all depend on the boundary and scale of the market being measured.

Large companies and mainstream industries are more likely to attract trade associations and commercial research firms that publish regular market data. Smaller organisations and specialist segments often receive less attention. Occasionally, a business with turnover of £10–20 million will have monthly data covering itself and a handful of rivals, perhaps supplied by an entrepreneurial independent researcher. Most small and medium-sized enterprises do not.

Even a company with £100 million in revenue may find that published reports cover its principal activities but omit a promising £10 million segment with only two serious competitors and growth of 15 per cent a year. Such a niche can be too small to offer a commercial research provider enough subscribers. When no suitable market estimate is available, management must build one.

How to use it

Begin by deciding whether the required boundary is the addressed or addressable market:

Addressed market – the customers to whom the organisation currently offers its goods or services, whether or not they buy.

Addressable (or available) market – all customers the organisation could serve if it extended its offer.

The difference can be substantial. Once the boundary is explicit, use one or more of six approaches:

Top-down market research – begin with a known published total, remove irrelevant portions and apply evidence-based assumptions until the target market remains.

Bottom-up market research – assemble the relevant components from disaggregated industry or market data.

Bottom-up customer sizing – estimate spending by major customers, then add an allowance for smaller accounts.

Bottom-up competitor sizing, or marketcrafting – estimate the sales made by each competitor within the defined boundary.

Related-market triangulation – use known sizes of several connected markets to establish a plausible range for the target market.

Final triangulation – compare all estimates, investigate why they differ, rate their reliability and, where appropriate, calculate a probability-weighted result rather than selecting the most convenient answer.

Marketcrafting is particularly useful because the same evidence supports analysis of demand, supply and competitor position. The technique has been applied mainly to niches and segments of larger markets, although it can also work at broader scale. One engineering application produced an estimate of about £175 million for a segment not covered by commercial research.

Apply marketcrafting as follows:

Select the competitor set. Include organisations encountered in bids, sales conversations and trade shows. Do not omit international or lower-cost competitors.

Estimate relative scale. Start with competitor A and ask whether it sells more or less than your organisation in the defined market—perhaps half as much, or 10 per cent more. Use public information where available. Private-company segment revenue may be unavailable, but employment, facilities, customer comments, supplier knowledge and former employees can help establish a range.

Create an index. Set your own relevant sales equal to 100. If competitor A appears to sell 10 per cent less, assign it 90. Use ranges and document confidence where evidence is weak.

Complete the named set. Repeat steps 2 and 3 for every competitor identified in step 1.

Allow for the remainder. Add an “Others” category for small, occasional or unknown suppliers. If their combined sales appear to be half your own, assign 50.

Calculate the preliminary total. Add the index values, divide by 100 and multiply the result by your sales in the defined market.

Challenge the estimate. Ask the sales director and other knowledgeable colleagues to complete the exercise independently. Draw on people with direct experience of competitors, customers, suppliers, operations and research and development. Discuss important differences, inspect the evidence and revise the assumptions. The output is a reasoned estimate rather than a discovered fact.

Marketcrafting is necessarily approximate, but a transparent approximation can still support three strategically important measures:

Market share – divide company sales by the estimated market total. The competitor indices also produce indicative rival shares.

Market growth – repeat the exercise for a comparable point three years earlier, then calculate the compound change between the historical and current totals.

Market-share movement – compare present and historical shares for the company and its rivals. Direction and magnitude can sharpen assessments of competitive intensity and relative position.

An engineering example illustrates the calculation. The company generated about £30 million in the segment. Using the combined index, estimated market size was (585/100) × 30, or approximately £175 million. Its implied share was 17 per cent (100/585), below management’s prior belief of 25 per cent. Far Eastern competitor group D appeared to hold 21 per cent, less than the one-third sometimes claimed in trade commentary. Repeating the analysis for three years earlier suggested that the market had contracted by roughly a third—about 10 per cent a year—after the credit crunch.

Marketcrafting: an example

The historical reconstruction indicated that Far Eastern competitors increased share from 9 to 21 per cent, while the company moved from 20 to 17 per cent. The broad direction was already understood, but quantification disciplined the discussion, tempered exaggerated claims and focused management on the competitive challenge.

Top practical tip

Define the market boundary first, then ask several informed people to estimate competitor scale independently before reconciling the assumptions.

Top pitfall

Do not confuse a transparent estimate with a fact. If marketcrafting suggests 25 per cent share and credible market intelligence suggests 30–35 per cent, investigate the gap instead of dismissing the conflicting evidence.

Further reading

• Kotler, P. and Keller, K.L. (twenty sixteen). Marketing Management. Pearson.
• Hague, P., Hague, N. and Morgan, C.-A. (twenty sixteen). Market Research in Practice. Kogan Page.