Market Sizing Problems in Consulting and Strategy

Jul 8, 2024

Lecture Notes: Market Sizing Problems

Introduction

  • Presenter: Matt, Strategy Associate at Google, former Consultant at BCG
  • Topic: Market Sizing Problems in Consulting and Strategy Case Interviews

What is Market Sizing?

  • A type of question in consulting or strategy case interviews
  • Involves vague or ambiguous questions (e.g., market for dog toys, number of windows in NYC, weddings in Canada)
  • Purpose: To assess the ability to handle ambiguity and apply structured problem solving

Why Market Sizing is Important

  • Many consulting scenarios involve vague questions needing clear answers
  • Clients often hire consultants because they failed to solve a problem themselves
  • Understanding market size is crucial (especially in strategy projects) to measure business opportunities

Market Definition

  • Discussed in terms of total dollar amount or total transaction volume
  • Example: Market for weddings in Canada in dollar terms or volume of transactions

Key Concept: Approach Over Numbers

  • Focus on methodology: Interviewers assess your approach rather than the specific numbers
  • Develop a logical and structured equation to reach an answer

Example Question: How Many Students Apply to Consulting Jobs in the US Each Year?

  • Step 1: Write down the question for clarity
  • Step 2: Ask for a minute or two to structure your thoughts
  • Step 3: Think about potential clarifying questions
    • Dollars or units?
    • Which geography? (e.g., US vs. global)
    • Undergrads only or includes grad students?

Building the Structure (Equation)

  • Start with total number of undergrads in the US
  • Segment into four groups: Freshmen, Sophomores, Juniors, Seniors
  • Apply percentages to estimate eligibility and interest:
    • Freshmen: 0% eligible
    • Sophomores: 10% eligible
    • Juniors: 100% eligible
    • Seniors: 100% eligible
  • Percent of eligible students who apply (assumed 66% for eligible students)

Demonstrating Thought Process to Interviewer

  • Walk through structure to get feedback
  • Ask if interviewer has data (e.g., total number of undergrads)
  • Use reasonable assumptions when exact data isn't available
  • Example: 15 million undergrads, 20% interested in consulting, equal distribution across years

Sanity Check and Refinement

  • Sum calculations to reach an aggregate number
  • Perform a sanity check: Does the number make sense?
  • Be thoughtful about inputs and be willing to explain reasoning
  • Recognize that actual inputs in real consultancy work are critical

Ways to Improve Structure and Calculation

  1. Refine Inputs: Be more precise (e.g., seniors might have a higher application rate)
  2. Add Detail: Consider graduate students, additional countries, or average number of applications per student
  3. Restructure: Think about alternate ways to break down the problem

Practice and Further Help

  • Market sizing questions get easier with practice
  • Matt offers personalized one-on-one coaching for those needing extra help