CASE 9.

B: GUESSTIMATES – MARKET SIZE OF A NEW MODEL OF ONE PLUS

Step 1: The following statement should be read by the INTERVIEWER right at
the start of the case:
“A new model of OnePlus is arriving soon in the market. Estimate it’s market size in
India upon release”.

INSTRUCTIONS TO INTERVIEWER: (Share this information with the candidate).

About the company & industry:

1. Premium market is of smartphones priced more than Rs. 30,000

2. OnePlus has 30% share in the premium smartphone market in India. Other
leading players are Apple = 25% and Samsung = 25%.
3. Price of the new model = Rs. 50,000
4. Price of the current (latest model of OnePlus) = Rs. 40,000
5. Average life of a smartphone = 4 years
6. CAGR of the smartphone market = 4%
7. Other competitors are not launching any new models in near future.
PLEASE FIND BELOW THE APPROACH TO SOLVE THIS GUESSTIMATE. THIS
IS ONE OF THE MANY POTENTIAL SOLUTIONS. SO DON’T RULE OUT A
SOLUTION FROM THE CANDIDATE JUST BECAUSE IT DOESN’T MATCH THE
BELOW ANSWER.

FOLLOW THE LOGIC AND ENCOURAGE THE CANDIDATE TO COME UP WITH

A STRUCTURE AND THEN THE NUMBER.

STEP 1: Structure the potential market size for the latest OnePlus model:
MARKET SIZE comprises of two categories:

1. New Users (Users, who never used smartphone before)

2. Returning Users (Users, who are replacing their existing smartphone)
 

 New Users: Growth rate of industry * current users of premium smartphone

 Returning Users: (existing OnePlus users who want to replace their phone
with the new model) + (existing non-OnePlus users who want to replace
their smartphone with the new model)
 

STEP 2: The second step is to calculate the current premium smartphone

market in India
Overall Population = 1.3 Billion; Assuming a Rural – Urban divide of 60:40 split,

Rural Population: 0.78 Billion.

Urban Population: 0.52 Billion.

Assuming an average Indian household of 4 members-

Rural households = 0.78/4 = 0.195 Billion households.

Urban households = 0.52/4 = 0.13 Billion households.

% households who can afford a premium smartphone:

Urban (% of
Rural (% of
% share of households
households who
households Earnings per month who can
can afford a
by income (Rupees) afford a
premium
segment premium
smartphone)
smartphone)
Lower Class 30% <8K 0% 0%
Lower Middle Class 30% 8-16K 0% 0%
Upper Middle Class 20% 16-32K 1% 2%
Upper Class 20% >32K 10% 30%
 

Average number of phones per household:                  

Urban (# of
Rural (# of phone
phone per
per household)
household)
Lower Class 0 0
Lower Middle Class 0 0
Upper Middle Class 1 1
Upper Class 2 3
 

Premium smartphone market size in the Rural segment –

= {(% of Rural households in a particular income segment) * (% of Rural household
who can afford the product in that particular income segment) * (Avg. number of
phones in that particular household corresponding to that income segment)}

= {(20% * 1% * 1) + (20% * 10% * 2)} * 0.195

= 0.043 * 0.1

Premium smartphone market size in the Urban segment –

= = {(% of Urban households in a particular income segment) * (% of Urban
household who can afford the product in a particular income segment) * (Avg.
number of phones in that particular household corresponding to an income
segment)}

= {(20%*2%*1) + (20%*30%*3)}*0.13

= 0.042*0.195 + 0.184*0.13
= 0.03 Billion – The current Premium Smart Phone Market Size.
STEP 3: Estimating the new users
(If growth rate of premium smartphone industry is not given, you can assume
CAGR = GDP growth rate. For India ~ 6%).
New users: 4% of 0.03B = 1.2 Million
Of these New Users: Assume 30% will buy OnePlus brand = 0.3*1.2 = 0.36M.
Assuming 30% because that is the current market share as mentioned at the
beginning of the case.

Assuming 50% will buy the latest version of OnePlus = 0.5 * 0.36 = 0.18M (And the
remaining 50% will buy the old version). This is purely an assumption.
 STEP 4: Estimating the returning users
Since the average life of a smartphone is 4 years, 1/4 th i.e 25% of the current users
might be thinking of changing their phone. This is mentioned at the beginning of the
case.

1. In need of a new phone: 0.25*0.03 Billion (current market size as

calculated in Step 2) = 0.0075 Billion = 7.5 Million
2. Not in need of a new phone:  o.o3 Billion – 7.5 Million = 22.5 Million
Of these, 30% are OnePlus users and rest 70% are non OnePlus users.

% of people who would buy the new model:

OnePlus = 30% (Market

Non OnePlus = 70%
Share)
In need = 25% (7.5M) 80% 20%
Not in need = 75%(22.5M) 20% 0%
 

The assumptions for the above percentages:

 Users are brand loyal. So 80% of the current OnePlus users who NEED to
change their phone, will buy the new model.
 Some premium users shift to the latest model even when there is no need
to do so. So 20% of the current OnePlus users, who DON’T NEED to
change their phone, will still buy the new model.
And the same can be said of Non OnePlus users, but expect them to purchase other
brands so the the number of purchases w.r.t. OnePlus would be lower.

Hence the returning users can be calculated as:

OnePlus Returning Users= [(80%*30%*7.5 Million) + (20%*30%*22.5 Million)]

Non-OnePlus Returning Users = (20%*70%*22.5 Million)

= One plus returning users + Non-OnePlus returning users

= 4.2 Million
 

STEP 5 : Total market size

= returning + new users = 4.2M + 0.18M = 4.38 Million New model OnePlus
phones