Method for estimating market demand: an in-depth guide by an industry professional

Breaking into fresh territories promises bountiful growth, but relying on blind instincts can lead to disappointment. A product that thrives domestically may underperform overseas due to variant consumer demands, competitive intensity, or spending power. Market potential significantly varies from region to region, and seemingly attractive opportunities can fizzle without proper evaluation.

That's why analyzing market potential is crucial. It's not just about gauging size; it's about grasping relevance, accessibility, and the underlying factors that drive demand. This encompasses identifying the Total Addressable Market (TAM), refining to relevant serviceable market segments, and evaluating the proportion you could reasonably capture.

Assessing sales in new, uncharted markets can be daunting due to the uncertainty surrounding costs, behaviors, and local conditions. To proceed with confidence, brands require a data-driven, informed model, rather than conjecture.

Thoroughly analyzing market potential empowers brands to prioritize regions, plan strategic entry strategies, and allocate resources in areas where returns are most likely to materialize.

The True Worth of the Market

Before diving headfirst into a new region, brands require a crystal-clear view of the local commercial landscape. This journey commences with a market sizing analysis, examining current and prospective market size, demand trends, growth rate, profitability, cost structures, distribution networks, and the factors critical to success.

An initial scan of this data might be sufficient to narrow down potential opportunities. However, when significant investments are at stake, a more comprehensive assessment is indispensable. Here is where a deeper understanding of the market becomes vital, aiding in the evaluation of opportunities based on data rather than intuition.

Many brands then employ a Total Addressable Market (TAM) framework to quantify the opportunity. TAM represents the full income potential if your product or service were adopted across the entire market. From there, the focus shifts to the Serviceable Available Market (SAM) – the portion of TAM your offer is relevant to – and eventually to the Serviceable Obtainable Market (SOM), or the share your brand could realistically capture based on its current strengths and the local competitive landscape.

Adopting a structured approach provides clarity not only on market size but also on how well the opportunity aligns with your brand's abilities and strategic direction.

Estimating SOM in Novel Markets

Achieving a realistic Serviceable Obtainable Market (SOM) figure is seldom straightforward, particularly in unfamiliar markets where your brand is unproven. Even in locations where you've already established a presence, calculating SOM involves educated guesses. The challenge escalates when entering unknown territories, as the margin of error increases substantially.

Brands with experience in market expansion can sometimes draw from historical benchmarks and refine their assumptions through local research. Factors such as consumer behavior, purchasing power, and category maturity all shape what's achievable realistically.

In some cases, reliable data might be available from industry associations or government agencies. Yet, in less developed categories or markets where the product class is nascent, data might be scarce or inconsistent.

And even when baseline demand is discernible, estimating market share introduces further uncertainty. You may be familiar with acquisition costs, infrastructure, or marketing spend in familiar regions, but those assumptions might not translate well. Entering a new market often necessitates building cost models from scratch.

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Local Insight Trumps Spreadsheets

Market potential isn't merely a numbers game. Informed decision-making necessitates insights from those who are immersed in your target market. There are two means to obtain this intelligence: benchmark against similar companies that have entered comparable markets, and converse directly with local partners.

Begin by investigating sales figures or expansion strategies from firms comparable to yours. Even if they aren't direct competitors, their market entry narratives can shed light on barriers, demand gaps, and the most effective go-to-market strategies.

You can learn much by conversing with those firms. Probe about what surprised them. What mistakes were made? What ought they to have known earlier? Their experiences can reshape your assumptions, especially regarding peak sales periods, cultural business practices, and regulatory timelines.

Yet nothing exceeds the value of local expertise. Lawyers, accountants, logistics partners, and media buyers all possess knowledge that can aid you in estimating demand, circumnavigate risks, and uncover hidden costs. If you plan to enter through a distributor, licensee, or franchise model, their commercial instincts will help you gauge the scale of the opportunity.

Ultimately, comprehensive market research is what ties it all together. Coupling hard data on spend and category growth with local behaviors and expectations offers a more vivid and realistic view of what success may look like.

Shift Focus from Categories to Behavior

When projecting market potential, it's easy to grow fixated on product categories and rival competitors. Yet, a more potent lens is behavior. How do people utilize your product? What needs does it satisfy? What motivations drive purchases?

Instead of asking whether a new market offers similar brands, ask whether it harbors similar consumers. Identify the core behaviors and motivators behind your success in existing markets. Are your ideal customers driven by convenience, health, status, or sustainability? Do they share habits, routines, or values that transcend geography?

Then look for these same patterns in your target market. If you can map behaviors rather than demographics, you'll spot pockets of demand others may overlook.

This approach necessitates deeper consumer insight, ideally combined with strong market signals—things like local infrastructure, rising disposable income, or early brand awareness. However, if the fundamentals are in place, behavioral analysis can offer the clearest path to relevance.

Know Your Real Costs Before Committing

Estimating sales and market share is merely half the equation. The other half is cost. Market potential isn't merely about the quantity you can sell; it's about the portion you can keep.

Brands often misjudge the hidden costs of international expansion. Even seasoned professionals can be taken aback. Beyond standard operating expenses, a new market adds a layer of complexity you won't experience at home. Costs to consider include:

Shipping and Logistics: Freight rates are volatile, and capacity constraints can restrict exports. It's often cheaper to ship to major exporters than the reverse.
Legal and Compliance: From registering your business to ensuring proper labeling, contracts, and insurance, local legal frameworks can introduce unexpected hurdles.
Foreign Taxes: Different jurisdictions imply different tax laws. Your headquarters' domicile and market entry model will shape what you owe.
Translation: Everything from packaging to manuals, contracts to marketing materials, may require professional localization.
HR and Staffing: Even lean entries require staff on the ground—local personnel to manage partners, oversee setup, or represent the brand.
Travel: Visits to partners, warehouses, or new hires will add up quickly.

Each of these costs can diminish margins and delay profitability. A genuine market potential assessment must account for them.

Map Your Competitive Landscape

Rarely will you find a market devoid of competition. To make a realistic assessment of your opportunity, you need to understand who's already there and how strong they are.

Start by identifying competitors who cater to your ideal customer—even if their product isn't identical. Then delve deeper:

Product Scope: What's within their range? How easily can they adapt?
Positioning: What messages are they using? Through which channels?
Cost Base: Are they operating lean or enjoying scale advantages you'll find difficult to match?
Market Share and Fragmentation: How densely populated is the space? Is it ripe for consolidation or dominated by a few major players?
Structural Weaknesses: Do they rely heavily on licensing or outsourcing? Could that be a vulnerability you can exploit?

Competitor analysis helps Validate your assumptions and fine-tune your go-to-market approach. It also illuminates whether your edge lies in pricing, innovation, branding—or whether more groundwork is needed before launch.

Turn Insights into Action with a Smarter Market Entry Strategy

Expanding into a new market is never effortless, especially without prior experience. But with the right blend of data, local knowledge, and consumer insight, brands can make more assured, knowledgeable decisions.

At Kadence, we aid businesses by moving beyond conjecture. Our approach merges primary and secondary research with on-the-ground expertise in key regions, delivering a well-rounded view of your market potential and the most intelligent course to enter.

The critical steps we guide clients through:

Understand demographic and economic drivers that define your Total Addressable Market (TAM).
Explore behavioral and cultural dynamics that influence market demand and product relevance.
Estimate TAM, SAM, and SOM based on real-world activity and available demand.
Run consumer research to authenticate interest, preferences, and purchase intent.
Analyze competitors to understand potential share and barriers to entry.
Assess true costs and risks to calculate profit potential—not merely topline revenue.

Don't rely on assumptions. Let data and insight shape your strategy. Explore our market entry services, read our expert guide to market entry, or reach out to our team to discuss your project.

Brands should gather both local commercial landscape insights and comprehensive market research data before delving into new territories, as it helps in assessing sales and market potential in uncharted markets. Data-driven models are essential to make informed decisions about regions, strategic entry strategies, and resource allocation. Market research encompasses examining market size, demand trends, growth rate, profitability, cost structures, distribution networks, and critical success factors.

In addition to hard data, acquiring local insight from experts and established companies in comparable markets is crucial. Local knowledge can aid in understanding barriers, demand gaps, and successful go-to-market strategies, thus reshaping assumptions and estimating opportunities based on data rather than intuition. A structured approach, such as estimating Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM), provides clarity on market size and alignment with a brand's abilities and strategic direction.