What and Why:

Once we have identified the product or IP solution opportunity in any sector, the most important step is to understand and assess the potential of this opportunity.

Market opportunity analysis is the process of due diligence to assess the product/IP opportunity. The key activity in the market analysis is market sizing.

Key terminologies used for market sizing are:

• Overall Market Size: It is the sum total of the overall yearly revenues across all the customer segments in the market or industry.
• Total Addressable Market (TAM) size: It is a percentage of the total market size. It represents a size of market of a specific target customer segment for the product or solution. It is the size of the revenues, when the product or solution has 100% market share. This is the most important value that is heavily used during any market analysis and business case discussions.
• Potential market size for the product/IP solution: It is the estimate of market size for the proposed product or IP solution. It will be a percentage of the TAM. It is due to existence of other competing products or alternatives.

Who, How and Best Practices:

Market analysis and sizing is performed by Product strategist during the initial stages (ie during business plan preparation) and later supported by Product Marketing Manager.

The steps for market analysis and sizing at the beginning are:

• Define the opportunity: It is basically defining the problem intended to solve or opportunity identified in the market.
• Conceptualize the solution: Once you have defined the opportunity, conceptualize the solution you intend to develop at high level to solve the identified opportunity.
• Define the target market: It is identifying and defining the profile of target market and customers, and their challenges from the identified opportunity perspective.
• Market sizing: Market sizing is a process of estimating the potential volume of business for the selected product/IP solution. It quantifies the financial potential of the business. It is mainly used for making investment decisions and part of business plan for the proposed IP solution/product.

At this stage perform a quick analysis and decide if we need to put any further efforts in the process. The business opportunity would be considered the best for investment if it is found to offer profitable, sustainable, non-linear, growing, and large market. However it may not be possible to have all these aspects in every opportunity. If the overall size of the opportunity is small and not profitable, it does not matter even if the idea is one of the greatest and the product/IP solution is the best.

Predominantly the market opportunity sizing is done using top-down or bottom-up approach. In top-down approach the potential market size is calculated by determining the total size of the market, then estimating possible share of that market for the proposed product/ IP solution.

Considering the example of Capgemini’s EnergyPath solution, an SAP All-in-One solution for oil field services companies, the overall IT expenditure of oil and gas companies across the world represents the Total Market Size. However within this market, assuming that there are specific target geographies of USA, UK, Norway, and the Middle East, which we would like to focus on. Within these target geographies, there are selected customer segments/categories eg: upstream companies which we would like to focus on. And within these selected customer categories we would like to target customers having revenue of 1 to 4 billion USD. Thus the value of IT budget derived after all the above filters provides us the estimated Total Addressable Market Size for the solution.

In bottom-up approach the sizing is calculated by estimating potential sales based on the average deal size and number of relevant customers in the target segment for the proposed product/IP solution. While this approach takes more effort, the result is usually much more accurate and can be used as input in business plan preparation.

In this approach, start with estimating the total size or volume of customers for a defined target profile. The segmentation of target customers will help you get further insight of the market and estimate the market size more effectively. The next step is to estimate the average price of the proposed IP solution/product per deal or derive the price information from the existing products in the market (which can be a range as well). You could also refer to the competitors’ annual reports or other sources to derive overall revenues and customer base. Then use this information to arrive at an average price of the alternatives in the market. Then calculate the total market size based on the estimated total volume and estimated average price of the product. Estimate the total addressable market (TAM) size using the proposed product. This is basically the total market size if the product proposed has 100% market share. Consider various factors like geography segments, technology or platform, customer industry segment, etc to arrive Total Addressable Market size.

Notes:

• Information collected as part of market research shall be utilized for this activity and shall be iterated through market research and this activity till reasonable confidence is achieved in the output.
• Market opportunity analysis and sizing needs to be performed in an iterative manner, especially for the new products/IP solutions.
• Market analysis and sizing should not be a one-time activity in the beginning for the initial investments. It is recommended to repeat this at least once in a year so that the directions of investments and efforts are aligned with the changing market reality.
• Clearly identify the all the assumptions and dependencies for the market opportunity analysis and sizing.
• Performing both a bottom-up and a top-down market sizing is recommended. For instance, if your top-down analysis provides a much bigger figure than your bottom-up, they you probably need to rework your filters. In the opposite situation, you may have been too optimistic of the price a customer would be willing to pay for your product.
• It is recommended to perform market sizing considering a range with possible best case, average and worst case scenarios.
• Product management team can also obtain guidance and support from Central IP team in the process of market analysis and sizing for the solutions in Ready2Series portfolio.

References:

• Check list (TBD)