Research Tips (3): Market size sources

Market size is both the starting point and the Holy Grail for assessing markets. Usually expressed in value of spending (sometimes in volume of goods), the market size description should contain something like this, at the bare minimum:

"The market for Product X was worth £150m at retail prices in 2006, having grown by 5% over 2005."

This statement is usually accompanied by a statistical table showing sales over the most recent 5-6 years. Usually 5-6 years, simply because that fits across the width of an A4 sheet! Also because a five-year period will give a guide to growth trends and will often include a boom or bust phase.

This may seem like a very basic analysis but many things stem from here:

• How much is £150m, relative to other markets, and the overall economy?

• Is 5% a reasonable rate of growth in the current economic climate, assuming it includes inflation (i.e. at current prices)?

• If we know Company A's turnover, we can give it a market share (by converting manufacturer or wholesaler prices into retail prices)

• From the total market size, we can then start the all-important segmentation analysis which will tell us where the gaps are in the market and which products are selling well

• The 5-6 year analysis also gives us a start on calculating the all-important future of the market. Without a projected trend of some sort, no rational business decisions can be taken.

So what are the sources for these market size figures? There are several:

• For many consumer products, the most widely quoted come from retail audits which should, in principle, give accurate data of actual sales. The problem is that this works fine for branded, fast-moving consumer goods sold through store chains - the type of market where market research originated - but audit-quality data are rare in services, leisure industries, B2B markets and industrial sectors. Audit data is also expensive and usually very confidential to the large companies that fund its collection. A further problem may be that the audit does not adequately cover all distribution channels - a growing problem in the e-commerce era.

• Government statistics include expenditure series which, with some qualification, can be used as commercial market sizes. Consumer Trends, for example, gives variable coverage of many consumer markets (products and services, often based on the official Expenditure & Food Survey of households). The Product Sales and Trade series has aggregate sales for larger companies in an industry and includes imports and exports.

• "Apparent consumption" is a calculation of national market size using domestic company sales ("production", or "output"), less exports, plus imports. This is rarely a precise method (often interfered with by re-exporting) but is useful for measuring an industry's export ratio (exports % output) and import penetration (imports % consumption). A domestic market might be tough to get into (high import penetration) but some segments of it might show potential for developing exports.

• The term "Trade estimates" is often seen as a source for market sizes. If the "traders" in question are not simply quoting retail audits or other data sources, it is usually a matter of major players in the market knowing (or estimating) their own market shares, thus letting them gross up their turnovers (and those of competitors) to a total market size.

• The grossing up of major companies' sales into a market size is also a method used for another source, the trade association survey of members. Association data based on member surveys varies from the skimpy or non-existent up to detailed documentation produced by associations like the Cinema Advertising Association or the Society of Motor Manufacturers & Trades (see also Research Tip 2: Trade associations ).

• Finally, market research in its narrow definition of field research to obtain data on consumer or B2B activities is another source for estimating markets. If we know how many consumers/businesses buy something, how often in the year, and the average prices in the market, we can come up with a market size, although this method is a long way from the accuracy of the retail audit.

Where possible, market sizes emanating from one of these sources should be checked against other data sources - does the given market size (and growth rate) stack up against major players' turnovers, import statistics, government retail statistics, statements from trade associations and so on.