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Estimated price point and target demographic

edcase's Avatar

Hello Insiders, Can everyone help me with this topic? I am very inexperienced about this subject.

 How do I estimated price point and target demographic to determine market and revenue potential?

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countofmontecristo's Avatar

Hi Edna-

There is A LOT of research, variables and calculating that needs to be completed to even come close to an answer.

Many say that you can just look at your competition to see what they charge and adjust your price accordingly.

That is simply too easy and not true.  Every product and target market has their own quirks and you have to take that all into account.  I have copied and pasted the below for you and edited it to make it more generic.   Hopefully this will give you some glimpse of what's needed.   I highly recommend the books by Author Steven Key, as he is a marketing and inventing 'machine' and has been for many years.

Calculating Your Potential Market

One of our outstanding mentors, Michael Leventhal, helped out with a presentation on calculating potential market. Michael’s background with Nielsen combined with his focus on cannabis provides fascinating insight into market potential and lends a degree of structure desperately needed within the industry.

Some takeaways from the presentation:

  • Surveys are critical to determine % of likely purchasers
  • B2B plays may need to rely on focus groups instead of surveys
  • Be conservative when estimating actual purchases, backing off of survey numbers

Another great set of tips involved the three basic requirements to satisfy before a purchase CAN be made:

  • Awareness
  • Need
  • Availability

Super basic…now can you answer the underlying questions for your company’s services/products?

What percentage of the potential market population is aware of your product/service?

What percentage believe they need your product/service?

What percentage could purchase your product/service today?

Multiply those three percentages together and you start to see how small your potential market is right now, and why advertising and distribution play such important roles in business (they are 2/3rds or more of the equation).

How does this play out? Let’s say we’re selling a new product in Colorado…approximately 3 million adults plus tourists (a whopping 71 million in 2014 – we’ll call that 50 million more adults) for a total of about 53 million potential customers.

53 million * (% aware of new product) * (% needing/wanting product) * (% able to purchase the product today) = Potential Customer Population

53,000,000 * .05 * .1 * .1 = 26,500

How does that play out? Well, 5% of the 53 million people “know” about our new product, that’s about 2.65 million people – job well done by our advertising department! Of those 2.65 million people say about 10% of them are interested in our product of any sort, that drops our number to 265,000 people. Finally, of the 265,000 people who want to a try new product, perhaps even ours, only 10% of them have access to make that purchase today, or about 26,500 people.

What’s our potential revenue if our price point is $15?

26,500 * $15 = $397,500  Now let’s talk competition…

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edcase's Avatar

Thank you Mr. Machesky and Mr. Brown for all the information. I will do my best to get it done even though I don’t kwon what I am doing.

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