Market potential is based on the estimated number of possible customers who might avail of the product or service. For a more realistic number, it would help to narrow down your estimation to the relevant population or target customers in the area where you want to operate your business (micromarket).
For entrepreneurs who are entering a business that caters to the basic customer needs, such as food, clothes, beverages, furniture, appliances, housing, schooling and the like, there would usually be demand and supply statistics available from government institutions, industry associations, and research firms. In addition, the entrepreneur must take note that the total market for these products is usually not the issue. Basic needs tend to be commodities or “commoditized.” Customers have the luxury of choosing among many basic needs suppliers. That is why these suppliers try very hard to differentiate themselves from one another by dividing the huge market into many customer segments.
The customers would, oftentimes, make the final choice on what to buy according to several factors such as: (1) their purchasing power or disposable income; (2) their proximity or accessibility to the goods or services; (3) their individual desires and preferences; (4) their age or generational grouping; (5.) their social, cultural, or ethnic background; (6) their peer group preferences; (7) their gender; (8) the season of the year; (9) their personal identification with trend setters; (10) their educational attainment; (11) their technical proficiency and product expertise; (12) their motivational impetus; (13) their lifestyle preferences; (14) their susceptibility to certain advertising and promotional appeals, and many others.
Market estimation is the most difficult task of the entrepreneur because of the many ways customers can be divided and segmented. However, the most common way resorted to by most entrepreneurs are through the use of demographics such as income (class A, B, C, D, and E), age (infants, toddlers, six to 12 years, teenagers, young adults, adults, middle agers, and senior citizens), gender (male, female), level of education, and locational proximity. In a pre-feasibility study, the entrepreneur should, at the very least, determine and quantify the market potential according to these broad customer classifications.