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not.
Question 2: That is a very comprehensive structure. Why don t we start by
estimating the market size for the product? We know that the 1 sachet can be used
to clean 10 liters of water.
This is a typical estimation question. You should drive the estimation step-by-step,
talking the interviewer through each of your steps and asking the interviewer for
information where you need it. If you are uncertain about any of the numbers you are
estimating, then validate the number and the assumptions you based it on with the
interviewer. It is far better to validate a number with them, than use a number that is way
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out and risk coming up with a nonsensical answer at the end of the estimation as a result.
Having said that, you must also demonstrate business judgment and confidence so don t
seek reassurance at every step only if you need it.
You should acknowledge that, given the product can be used to purify 10 liters of
water, it will most likely be purchased by households. A good place to start is by
estimating the total population of India, and then determining the total number of
households.
Population of India = 1 billion people
Assume an average 5 people in a household (Indian families are generally bigger than
Western families)
Total number of households = 200 million
Next you should realize that not all households will have the need for such a product.
A sensible hypothesis is that -
a) The product will probably be used by households which do not already have
access to clean drinking water through basic state owned infrastructure. These
will most likely be households in non-urban areas.
b) The product will be used by households who do not have the disposable income to
purchase easier, less time intensive alternative sources of purifying water eg:
filters, bottled water etc. These will therefore be the lower income households.
Given India is a developing country it is fair to assume that a larger percentage of the
population will be in non-urban areas. You can use your knowledge of UK (a developed
country) where the urban/rural split is probably 70/30. Hence, in India it is probably fair
to assume that the split is the reverse Urban/Rural = 30/70.
Based on your hypothesis a), your initial market consists of the rural households = 70%
* 200 million = 140 million
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Next, based on your second hypothesis, estimate the income division in the rural areas.
Given that the Indian rural economy is mostly agriculture based and from your
knowledge of the high poverty in India, it is also fair to assume that the split between
high/low income in rural India is 30/70.
Based on hypothesis b), the initial market size estimate can be improved to 70% * 140
million = 98 million ~ 100 million.
Hence, you can say that the market for this product will consist of 100 million households
in India.
Note: The exceptional candidates will split the regions between urban (major cities),
semi-urban (towns and the poorer outskirts of major cities), and rural areas (villages),
and make their market size estimations on this basis. You should realize that though there
is no proper drinking water infrastructure in villages, water from the wells or rivers is
probably cleaner than the stagnant water from the tanks in towns and the outskirts of
major cities, and therefore that in rural areas it is probably fair to assume that perhaps a
quarter of the households are happy with, and healthy on, their current water source.
The next step is for you to calculate the drinking water consumed per household and
hence, the number of sachets used per annum.
Assume that 1 household consumes 10 liters of water per day (1 person consumes
2 liters per day). This is a fair estimation given that in the West we are recommended to
drink 1.5 liters of water per day for healthy living, and India is in general a hot country.
Given that 1 sachet can clean 10 liters of water, 1 household uses 1 sachet per day.
Note: the creative candidates will notice that the drinking water consumption will vary
with age of members in a household and also based on the geographical location of the
regions (hot/colder). In general though, it is fair to mention these points but then take
average values.
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That gives a total of 100 million sachets per day, or 36.5 billion sachets per year.
You should summarize that our target market will consist of people who live in semi-rural
and rural areas, and have low income such that they cannot buy the expensive substitutes
for the product.
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