How big is your market? Is it large enough to sustain your business and competition? What is the growth trend for the next five years? Once a market has been identified, what is the size of the actual market that you can compete in? The actual market segment that you can sell to may be a small fraction of the total market. Each total market must be examined in light of:
- size of the total market
- size of the market that is interested in your products
- size of the market that is available for distribution of your products
- size of the market that already buys competitive products
- size of the market that your company can serve
- size of the market that your company can reach with advertising and distribution
For example, the total potential market for water purification and filtering devices is 100 percent of the world's population, almost five billion people, since everyone needs to drink pure water. But the size of the market interested in water purification devices may be three billion people. The size of the market available for distribution may constitute two billion people. But the size of the market that currently buys such products may be under 700 million people.
Assume your company is planning to introduce new water purification devices only in the United States and only in the outdoor/camping industry for portable water purification devices. Then the total market you can serve for your company's products may be only one million potential users, or 0.02 percent of the total potential world market.
What about the size of the market segment that your company can afford to reach with advertising and then distribution? Depending upon your company's resources and size, you may be able to effectively reach only 50 percent of the one million American camping enthusiasts through distributors who are willing to take on your product line. Assuming you are able to afford a modest print magazine ad campaign in two or three national industry magazines, perhaps 50 percent of consumers may be aware of your products, or a net 250,000 potentially interested, aware consumers.
If only one in four interested, aware, available, and servable consumers end up buying your product, you have potential sales of 62,500 units/year. Not bad, you say. But if the repeat purchase rate is five years, you would need to generate an entirely new group of 62,500 qualified consumers each year, at least for the first five years. And this may be more difficult to execute than previously thought with a total potential market of almost five billion souls! Perhaps you could increase the distribution base, increase advertising, or increase the served market to include other countries, or expand the product line by creating different sizes of portable water purification devices, or different units for varying severity of non-potable water conditions.