Ok, this is dry but TOTALL magical to me. Ripped from my textbook and regurgitated- some examples of how to size and target a market:
Say that I wanted to sell energy-efficient hair dryers and am best equipped to sell/distribute in San Francisco and LA.
I would start by using the market-buildup method to explore the commercial market. I would go to the North American Industry Classification System (NAICS) to get a directory of all of the hair salons in the two cities. I would then survey a random sampling of hair salons to learn the rate at which they currently buy hair dryers, along with a way to gauge ways that my product could expand that market. Would hair salons replace a perfectly good hair dryer if the energy savings paid back the cost in 3 months? The number of hair salons times the number of hair dryers purchased times the price would be my total addressable market. I would then have to decide which segment of the market to invest in energy efficiency (probably high-turnover hair salons where the dryers get more use and the savings would be more pronounced.)
The next step would be to explore my consumer market using the multiple-factor index method. Say I found a number for total hair dryer sales across California. I would multiply that number by the % of Cali’s population in SF and LA, then tweak it with several numerical factors. I might look at the number of hair salons per capita across california- if it’s above average in SF and LA, I would add that proportion to my equation (presumably more hair salons means that people care more about their hair.) I would also add multipliers if disposable personal income or total retail sales were above average. Once I had my total addressible market I’d be able to use similar math to go census tract by census tract and find the highest-impact retail stores in which to place my product.