P.S: I have done ~30 work trips to Chicago over the last 2 years. Never got a chance to explore the city. However, this morning, I took a halt to see The Bean on my way back to New York.
Market sizing is a key step in equity research and investing.ย It is very useful in Strategy Consulting to understand the โsize-of-the-prizeโ.
It is a favorite topic for recruiters (I was asked to estimate the 2-wheeler market size in my case interview for my present firm almost a decade ago)
Now, letโs understand market sizing for a few industries.ย There are two methods: top-down and bottom-up.
First, letโs understand ๐๐ผ๐ฝ-๐ฑ๐ผ๐๐ป for 4 example industries. It has the following steps:
a. ๐๐ฑ๐ฒ๐ป๐๐ถ๐ณ๐ ๐ธ๐ฒ๐ ๐ถ๐ป๐ฑ๐๐๐๐ฟ๐ ๐บ๐ฒ๐๐ฟ๐ถ๐ฐ e.g.,
โข Premiums (for Insurance business)
โข # of 2-wheelers
โข # of beds (for hospitals)
โข AUM (for Asset Management)
b. ๐๐ฒ๐๐ฒ๐ฟ๐บ๐ถ๐ป๐ฒ ๐ถ๐ป๐ฑ๐๐๐๐ฟ๐ ๐บ๐ฒ๐๐ฟ๐ถ๐ฐ ๐๐ฎ๐น๐๐ฒ ๐ฟ๐ฒ๐น๐ฎ๐๐ถ๐๐ฒ ๐๐ผ ๐๐๐ฃ ๐ผ๐ฟ ๐๐ต๐ฒ ๐ฝ๐ผ๐ฝ๐๐น๐ฎ๐๐ถ๐ผ๐ป e.g.,
โข General Insurance Premium is 1% of India GDP
โข # of 2-wheelers = 160 per 1000 people
โข # of beds = 1.3 per 1000 people
โข MF AUM is 20% of GDP
c. ๐๐ผ๐บ๐ฝ๐ฎ๐ฟ๐ฒ ๐๐ต๐ฒ ๐ฎ๐ฏ๐ผ๐๐ฒ ๐๐ถ๐๐ต ๐ด๐น๐ผ๐ฏ๐ฎ๐น / ๐ฒ๐บ๐ฒ๐ฟ๐ด๐ถ๐ป๐ด ๐บ๐ฎ๐ฟ๐ธ๐ฒ๐ ๐ฝ๐ฒ๐ฒ๐ฟ๐ e.g.,
โข General Insurance Premium is 2% of China and South Africa GDP
โข # of 2-wheelers = 300 per 1000 people in China
โข # of beds = 3 per 1000 people (WHO reco.)
โข MF AUM is 25% of China GDP; 50%+ of Brazil and SA GDP
Using this comparison you can estimate the top-down market size for each of these 4 industries.
B๐ผ๐๐๐ผ๐บ-๐๐ฝ market sizing requires more work.
To over simplify, it is p*q i.e.
product price * quantity that can be sold to target customers in a particular industry.
If top-down and bottom- up are close then you have arrived at a reasonable market size estimate.
Take a look at these video snippets / posts to understand how I bring the above theory into practice for diff industries:
Health Insurance
2 Wheelers
Hospital
Asset Management
Movie Exhibition
โโโโโโโโโโโโโโโโโโโโโโโ
๐๐ช๐ฏ๐ฌ๐ฆ๐ฅ๐๐ฏ ๐ช๐ด ๐ง๐ช๐ญ๐ญ๐ฆ๐ฅ ๐ธ๐ช๐ต๐ฉ ๐ฎ๐ข๐ด๐ด ๐ฑ๐ณ๐ฐ๐ฅ๐ถ๐ค๐ฆ๐ฅ / ๐ต๐ฆ๐ฎ๐ฑ๐ญ๐ข๐ต๐ช๐ป๐ฆ๐ฅ ๐ฆ๐ฒ๐ถ๐ช๐ต๐บ ๐ณ๐ฆ๐ด๐ฆ๐ข๐ณ๐ค๐ฉ ๐ข๐ฏ๐ฅ ๐ท๐ข๐ญ๐ถ๐ข๐ต๐ช๐ฐ๐ฏ ๐ณ๐ฆ๐ฑ๐ฐ๐ณ๐ต๐ด โ ๐ธ๐ฉ๐ช๐ค๐ฉ ๐ฅ๐ฐ ๐ฎ๐ฐ๐ณ๐ฆ ๐ฉ๐ข๐ณ๐ฎ ๐ต๐ฉ๐ข๐ฏ ๐จ๐ฐ๐ฐ๐ฅ.
๐๐ฐ๐ญ๐ญ๐ฐ๐ธ๐ช๐ฏ๐จ ๐ข๐ฏ ๐ฆ๐น๐ค๐ฆ๐ญ ๐ต๐ฆ๐ฎ๐ฑ๐ญ๐ข๐ต๐ฆ ๐ข๐ค๐ณ๐ฐ๐ด๐ด ๐ข๐ญ๐ญ ๐ช๐ฏ๐ฅ๐ถ๐ด๐ต๐ณ๐ช๐ฆ๐ด โ ๐ฏ๐ฐ๐ต ๐ฆ๐ท๐ฆ๐ฏ ๐ต๐ณ๐บ๐ช๐ฏ๐จ ๐ต๐ฐ ๐ข๐ฑ๐ฑ๐ณ๐ฆ๐ค๐ช๐ข๐ต๐ฆ ๐ต๐ฉ๐ฆ ๐ช๐ฏ๐ฅ๐ถ๐ด๐ต๐ณy ๐ฅ๐ช๐ง๐ง๐ฆ๐ณ๐ฆ๐ฏ๐ค๐ฆ๐ด โ ๐ช๐ด ๐ข ๐ณ๐ฆ๐ค๐ช๐ฑ๐ฆ ๐ง๐ฐ๐ณ ๐ฅ๐ช๐ด๐ข๐ด๐ต๐ฆ๐ณ
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