Case Interviews
Does a bottom-up market sizing always need a capacity constraint?
I am comfortable estimating a national market from population or total demand, but struggle more with one location: a Broadway theatre, a London bike shop, a museum in Los Angeles or a particular Apple store. Does a non-top-down approach mean I should always look for a capacity constraint, or is there another way to choose the structure?
Ian’s Answer
Ok, so I want to take a step back here. A supply-constraint approach works for the 4 questions you listed.
However, you're also asking about “non-top down” market sizings which won't always be supply/constraint-based.
General Tips
Remember that there's rarely a "best" answer with market sizing. What's important is that you break down the problem the way it makes sense to you. Importantly, break it down so that the assumptions you make are the ones you're most comfortable in.
For example, do you know all the major brands? Great go with that. Do you understand all the segments of that country's population (either age or wealth or job breakdown)? Go with that. Do you know the total market size of a similar industry? Then break it down that way.
It's very simple: Do the approach the is the easiest for you given the question.
Are they asking you to estimate something where you don't even know where to begin from the top (maybe you have 0 clue as to the market size of the industry, the GDP of that country, etc. etc.)? Then do bottom-up!
Alternatively, does it seem impossible to do a realistic from-the-ground-up estimation of something (perhaps it requires just far too many steps and assumptions)? Then do top-down!
Fundamentally, you need to take the approach that just makes the most sense in that circumstance. Quickly think about the key assumptions / numbers required and whether you 1) Know them or 2) Can reasonably estimate them. If you can, go ahead!