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Case Interview - Question types Market Sizing Example – Questions and Practice
A quick glance
- Clarify the question
- Break down the problem
- Hunt down & consolidate the answer
What’s the global market size for smartphones?
Step 1: Clarify the Questions
There are two things you have to make clear:
- Q: What’s “smartphone” defined as? Is it any phone with a multi-touch screen?
A: Smartphones are any phone with multi-application capability.
- Q: Does this apply extensively to every person on Earth? Are there any limitations or exceptions?
A: The market includes every person on Earth.
- Do we measure market share in a particular year or a specific period?
A: In this current period.
- How do we measure the market share: number of new phones per year OR the total revenue of new smartphone sales in a year?
A: It’s measured by annual revenue of new sales.
Step 2: Break down the Problem
– How many new phones Apple sells? Sale revenue?
– How many new phones Samsung sells? …
– HTC, Sony, Asus, other small producers….
– Number of new phones sold:
- Phones sold to first-time users.
- Phones sold to people to replace old ones.
– Average price per phone.
– How many new high-end smartphones are sold?
– How many new mid-end smartphones are sold?
– How many new low-end smartphones are sold?
Useful tips: When all of these are written down, they seem long. But care only for the general idea of each branch, then quickly realize which method is the best.
In this question, structuring by demand makes the most sense. Let’s demonstrate the details in the following Step 3 & 4.
Step 3 & 4: Hunt down and consolidate the answer
How many phones are sold each year
Average phone price
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.
Phone sold to existing users
- 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.
Suppose the average price per new smartphone is $400
Consolidating data: 600 million new smartphones sold each year.
The global market size for smartphones is
600 mil x $400 = $240 billion.