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.

Eiffel Tower, London Eye: similarities and contrasts

The Eiffel Tower had 6.7m visitors in 2006 - a new record - and the London Eye sells 'over 3.5m' tickets a year, making it the UK's most popular paid-for attraction. These two icons of mass-market, urban tourism offer up some interesting contrasts - as well as similarities - for anyone examining leisure markets in Europe.

The Eiffel and the Eye are in some ways symbolic of the economic and cultural differences that have been deepening between the UK and France. Take your child to climb some of the 1,665 steps to the top of the Eiffel Tower and you will be doing what you did as a child and perhaps what your own parents or grandparents did. The Eiffel is fun to visit but, after 117 years at the heart of a city, it has plenty to teach about history, technology and keeping fit by climbing stairs.

In contrast, the London Eye is an overtly commercial 'ride', taking its inspiration from ferris wheels in the old amusement parks that have evolved into today's theme parks. No better reminder of the commercial reality than the permanent title-sponsorship: it should always be referred to as the British Airways London Eye. As of March 2007, the Eye is just one of many European attractions owned by the private equity giant, Blackstone Group, bringing it to the forefront of cutting-edge investment in leisure. Another contrast, then: the Eiffel Tower remains steadfastly owned by the Paris municipal authority although operation is sub-contracted to a private company. (To complicate matters, part of the land on which the Eye sits is municipal, but this does not affect its operation.)

Tourism needs this combination of hard-nosed commercial reality with more profound cultural experiences. France still has the edge as a destination because it attracted Walt Disney to build its only European park near Paris, so visitors to the region can have a kaleidoscope of experiences. Not that London is lacking in cultural appeal; a short walk from the queues to ride the Eye, the Tate Modern (free admission) is already attracting over 4m visitors a year to puzzle over ground-breaking works of installation art.

What about the similarities?

Firstly, both monuments are centrally positioned in their cities and offer splendid views over the many attractions of Europe's two most popular cities: by nights spent in hotels, London and Paris remain head and shoulders above all other European cities.

Inevitably, both attractions are extremely busy and expensive to visit in peak periods. In 2007, a 'flight' on the Eye costs an adult £14.50, while the Tower is charging €11.50, about £8, for an elevator ride to the top. Fortunately, both are situated in pleasant surroundings where tourists can sit and watch the world go by - the Trocadero fountains and Champ de Mars in Paris, the redeveloped South Bank of the Thames in London.

Another similarity is the excellence of the two attractions' websites with the Eiffel Tower operators, in particular, providing in-depth visitor statistics. The fully private Tussauds Group, immediate owner of The Eye, is understandably more coy about revealing operational data.
www.londoneye.com
www.tour-eiffel.fr/teiffel/uk/ - English version

EMI and Warner: what's in a label?

Anyone who grew up in the Glory Days of vinyl will remember how resonant record labels could be: Sinatra's Capitol Years, The Beatles on Parlophone then their own Apple label, Bob Marley on Island, the rubber-stamp of Motown for so many stars, the joyful soul of Stax and so on.

Labels may have reached their PR climax in 1977 when Johnnie Rotten signed off the Sex Pistols "Never Mind the Bollocks" LP with a song mocking EMI and A&M, both labels which failed to cope with the maelstrom of punk. But EMI won in the end, buying the label on which the Pistols actually recorded, Virgin Records, in 1992.

By the early 1990s, much of the romance of being signed to a particular famous label was gone for young musicians. EMI and the three other global majors (Universal, Warner, Sony BMG) have swallowed up dozens of labels which once stood proudly for independence (or an attitude). EMI alone owns the likes of Parlophone, Capitol, Virgin, Chrysalis and Mute. The need for labels is only recognised in miniscule writing and logos on the CD and cover of the Beatles 2006 compilation, "Love". "Parlophone is a Capitol music label." "Marketed and distributed by EMI".

Labels lost importance as records and cassettes gave way to CD, and downloading now turns the concept of a physical label - if not the idea of a small, independent production company - into a recording industry dinosaur. Selective downloading of individual tracks, combined with the almighty iPod/iTunes system, is also undermining the whole idea of producing "singles" or "albums" which need labels. When you make up your own playlist (or your personal compilation album) you are effectively creating your own, personal music label.

So it's become a struggle to make money out of music, at least enough to keep a multinational ticking over. Hence the label-swallowing and mega-mergers that have produced just four majors:

• Universal Music Group - leader with 25% of the world music market, labels include MCA, Polygram, Decca, Motown and Island). UMG is part of the French media group, Vivendi Universal.

• Sony BMG - over 20% market share, product of a 2004 joint venture (still under investigation: see below) between Sony and Bertelsmann. Famous labels include RCA, CBS, Epic and Rough Trade but Sony Music or Sony BMG are increasingly used.

• Warner Music Group bought out the music division of Time Warner in 2003 (just as UMG is now separate from Universal Studios). Historic labels under WMG include Atlantic, Elektra and Asylum (label for The Eagles in the 1970s: their first hits compilation is the top-selling album of all time.)

• EMI - UK-based although a USA major through Capitol since the 1960s.

The four majors could become three if Warner and EMI can get round to merging, a possibility since the early 2000s but one which seems some way off in early 2007. The problem is that the European Commission (plus the US government) would have to agree to a merger, and the Commission is spending the first half of 2007 investigating whether the 2004 Sony-BMG merger was legal after all.