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May 14, 2008 / Ben Chun

Estimating Markets

Proving once again that teaching from experience works best, today I had a stunning (and unexpected) success in teaching students to estimate the size of a market. This particular skill is something that I didn’t really think about until I had friends doing case interviews for management consulting in college, but it’s very practical, widely applicable beyond business, and requires only simple arithmetic. It’s also fun because you can basically make everything up and argue about it without needing to resort to actual facts or statistics.

Last time I introduced this concept, I started with the question, “How many cell phones will be sold in the United States this year?” which I think is an interesting question but didn’t really have any driving motivation behind it. Today, by contrast, I started with a true story: I was eating Indian pizza with friends and we started looking at the little plastic support thing that comes in the middle of the box to prevent the box lid from being crushed in and sticking to the pizza.

It’s such a strange and specific plastic item that someone at the table (maybe me) asked how many of them are used each year in the United States. And we sat there and figured it out, within a factor of 2, if I remember correctly. So I started today’s lesson by drawing the pizza box and telling this story. “No, of course we didn’t use the Internet to look it up because our fingers were greasy from the pizza!” I provided the key fact that the US population us about 300M and then asked them from there to estimate the number of pizzas eaten per person per year, the fraction of those that were take-out, and did the math along the way.

Then I turned them loose to estimate the market size for their products. It went approximately a billion times more smoothly this semester than last. That’s just an estimate.

[Update: By the end of the day, a student brought me one of these little plastic things. Maybe the next lesson should be about ice-cold beverages.]

One Comment

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  1. Sensei / May 31 2008 9:49 am

    Your next lesson should DEFINITELY be about Macallan 18 year…

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