Question: What’s the global market size for smartphones?
Step 1 Clarifying
Let’s plug these into the example. Here are a few clarification questions I would ask:
– What’s “smartphone” defined as? Is it any phone with a multi-touch screen?
– Does this apply extensively to every people on Earth?
– What’s the unit of measurement? The number of new phones per year? Or the total revenue of new smartphone sales in a year?
Step 2 Break down the problem
Now how do we break down market-sizing problems?
There are three most popular methods: (1) by demand, (2) by supply, and (3) by segment
Each question has its own best method and you need to choose. Let’s demonstrate them through this example. Let’s say I wanna tackle the global smartphone market size problem. Let’s run them through each and every one of the three methods.
Step 2 – Method (1) by demand:
Market size in sales of the new phone:
Number of new phones sold
Phones sold to first-time users
Phones sold to people to replace old ones
The average price per phone
Step 2 – Method (2) by supply:
Market size in sales of new phones:
How many new phones Apple sells
How many new phones Samsung sells
How many new phones HTC …
Sony …
Asus …
Other small producers
Step 2 – Method (3) by segment:
There are many ways to segment. But one of the most popular ones in the smartphone industry is high-end, mid-end, and low-end.
Market size in sales of new phones:
How many new high-end smartphones are sold
How many new mid-end smartphones are sold
How many new low-end smartphones are sold
Branch (1): How many phones are sold each year
Branch 1.1: Phones sold to first-time users
There are 7 billion people in the world.
Suppose people are evenly distributed through all ages.
Suppose the average life expectancy is 70 years.
So each year, there are 7 billion / 70 = 100 million people getting into the appropriate age to own a phone
Suppose 40% of people in the world have a smartphone.
All of those come down to 40 million new smartphones sold to first-time users.
Branch 1.2: Phone sold to people to replace their old ones:
Using the assumptions above, we know 40% of 7 billion people are currently using smartphones. That is 2.8 billion
Suppose on average, each person uses a smartphone for 5 years.
With all of those, we have 2.8 billion / 5 years = 560 million new smartphones sold to people to replace their old phones.
Consolidating branch 1.1 and 1.2, we have 600 million new smartphones sold each year.
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