Market potential is an estimate of the maximum sales of a product or service. It is a somewhat imaginary estimate as it assumes that a business can capture the entire market for a product. It is typically used by businesses to evaluate the potential of a new market or to compare the potential of different markets. Market potential is determined by a number of factors, including the size and growth of the population in the market, the level of consumer income and spending, and the availability and accessibility of competing products or services. By understanding the market potential of a particular market, a business can make informed decisions about whether to enter the market and how to position and market its products or services. The following are illustrative examples of a market potential.
Industry
The size of an entire industry such as fast food. This type of estimate tends to be accurate as governments and industry associations may publish relevant data.
Product Category
An entire product category such as boots.
Niche
Looking at market potential for a niche product or brand. For example, the size of the market for high-end boots.
Target Market
Estimates of market potential for a product with a specific target market based on factors such as price, lifestyle or demographics. For example, the size of the market for children’s boots.
Distribution
Considering the reach of the distribution channels. For example, selling boots in Canada and Europe might estimate the size of these markets as $Xb. This is also known as serviceable available market.
