Market Sizing Questions – Breaking Down Case Interview Frameworks

Welcome back to our case interview frameworks series, giving you a step-by-step approach to solve any case that’s set before you. If you haven’t read our first article yet, we encourage you to go back and read it before continuing. Think of this as your Market Sizing Cheat Sheet, as well as your guide for market sizing case question examples.

First, a quick recap: Case interview frameworks are used to both open a case and to solve a case. It’s important that you are familiar with utilizing the market sizing framework to open and solve a case. The frameworks presented below will help you in both instances and are meant to be practical, action-oriented, metrics-driven, and clear as you walk through the case process in your interview.

This is one of the main issues that distinguish MBB winners vs. try-agains. The winners come up with a framework and approach that would work on the job, not just in a classroom. In the real world (and in the case interview) you want to get to the answer directly and efficiently.

In the last article, we gave you an introduction to case interview frameworks and laid out our 4 core frameworks:

  • Market Sizing
  • Profitability
  • Market Study
  • Mergers and Acquisitions

Your goal should not be to regurgitate these in your interview. Rather, keep these in your back pocket and draw from them to customize your own frameworks inside of the case interview.

In this installment, we’re giving you a market sizing cheat sheet – read on for tips on how to accurately apply this framework to the cases you’re presented with.

  1. Market Sizing Example Questions

Market sizing questions are fairly straightforward. The interviewer wants you to measure the existing market of an item in terms of annual sales or total units. One type of market sizing question might sound something like:

How many cars are there in California?

In this question, the answer is the total number of units in the market. When they were sold is immaterial at this point.

How big is the car market in Mexico?

To answer this type of question, there are two sub-questions that you will have to tackle:

– How many cars were sold in Mexico last year?

To figure this one out, you can either calculate the number of cars in Mexico last year and then take into account how many were replaced, or use a methodology that measures just car purchases. Whatever your final answer is, it has to measure in units.

– What is the value of all the cars sold in Mexico last year?

This sub-question requires one further step than the last. After figuring out how many cars were sold in one year, you then have to multiply this number either by prices in different segments or by an average price.

The final answer you give after working through these two sub-questions will be a revenue per year answer (in the applicable currency if you can!).

This type of question (the total annual revenue of a market) is the most common and implied definition of market sizing questions.

What is the opportunity if your client introduces a hybrid car into the Mexican market?

In this scenario, the answer must start first with the previous approach – an annual market size. Then, your final answer will reflect what percentage of total sales your client can capture from that market. In this case, you’re figuring out how many exist, how often they get replaced and what percentage of the replaced cars your client will be able to sell.

Your goal is not to have the precise number that matches the interviewer’s sheet. Instead, you are trying to demonstrate that you can use effective logic, breakdown a problem, and gut-check your answers appropriately. Good answers are generally within one order of magnitude (<10x) of the correct answer, great answers are within 25% of the correct answer, if there is one.

  1. How to use Market Sizing:

First, you need to ascertain what you’re looking for. Before you start answering the question, if necessary, you can ask 1-3 clarifying questions to figure out what the interviewer is looking for. The question you’re answering should fall into one of the following categories:

    • 1- Market Total Units – The total number of all cars that are on the road regardless of when they were purchased
    • 2- Market Total Value – The total value of all cars that are on the road regardless of when they were purchased (this definition is rarely used)
    • 3- Market Quantity Last Year – The total number of cars sold last year (or more generally, annual)
    • 4- Annual Market Value – The total amount ($) spent on cars annually (this definition is most frequently used)
    • 5- Market Share of client – A percentage representing the total value of cars our client sold last year divided by the value of the total market last year

90%+ of market sizing questions will ask you to solve for the annual value of a market – if unsure, always assume this is what you are solving for. After clarifying which answer you’re trying to solve for (which gives you the keys to the steps you’ll need to use), next you choose one of two approaches:

Top Down

This type of sizing is done by population segment or by household. When you do top-down sizing, you’ll base your hypothesis on something like the population of the US or the population of the world and then work your way down from there. There are many ways to segment a market from there, including age or geography. The most common first segmenting method is to use age, and assume the world has only people 0-80, and each year has 1/80 of the population. Case interviews most commonly use a top-down approach.

Bottom Up

With bottom-up sizing, you will identify a single micro-element of a larger population and dial the numbers up until you reach the appropriate scale. For example, if you wanted to figure out how many bags are lost at an airport, you’d figure out how many times it happens in one day, before multiplying that number by the number of days the airport is open, making the necessary adjustments for weekends and holidays, etc.

Whether you use the top-down or bottom-up approach depends mostly on you – you can use either one to solve any problem. (Don’t believe us? Try it on the Mexican car market case with a partner!).

Sometimes, however, one will be optimal for the question you’re presented with. For example, clients with physical locations looking to measure market share or units may be more suited to a bottom-up approach (it’s easier to measure volume in one store on one day than perhaps to do the same market-wide). In general, though, most people find the top-down population approach to be more user-friendly.

Start With a Simple List

To talk through a market sizing structure for your interviewer, it’s important to create a simple list. The list should be 5-7 steps long and will include various segmentation steps.

The 5+ steps will all be data that you will gather, but you don’t need to lay out all the data at the start.  First, make the interviewer comfortable with your approach by qualitatively talking through the steps you want to take. Then, dive into the specifics of the data. Ask the interviewer for the first piece of data that you want. If they direct you to estimate your answers, be clear with stating each assumption and your rationale for the numbers you’re choosing. Finally, complete each calculation out loud, keeping track of the answer on your paper as you work through the answer step-by-step.

For both approaches, if price is applicable, it will always be the last step towards that ultimate revenue per year answer (most commonly). Just be aware the two different methods will produce different outcomes – and that’s okay. But in general, they should be close – or at least not orders of magnitude apart.

Don’t overcomplicate market sizing questions. The interviewer wants to see you work through a full process from start to finish in a rationale, logical, stepwise fashion. But you also cannot oversimplify by guessing data randomly or only performing 2-3 calculations. Fully talking through 5-7 steps with the interviewer will likely take you 6-8 minutes to complete.

When you have your final answer, gut check it to make sure it’s reasonable (and be clear in highlighting the strategic implications for the client).

Market Sizing Case Walkthrough Video

Through this market sizing cheat sheet, we’ve taken you a long way on the road to solving any Market Sizing case that gets put in front of you. For applied practice, join our Black Belt program – you’ll work 1:1 with an MBB coach and get access to 500 practice cases (including market sizing questions), case drills, market sizing drills, and more digital HW to augment your learning

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