The travel and tourism industry is facing unprecedented challenges. Research, planning, development, and implementation of marketing and other strategies are vital if you want your tour business to survive these difficult times. The issue is, however, you can’t do that effectively if you have not identified your market size.
The Importance Of Market Size
When you know the size of your target market, you can better evaluate the opportunities that come your way, and plan the way forward more accurately. Additionally, it can help you when creating an investment budget for not only research and development, but sales and marketing as well.
With clearer marketing strategies, you can spend appropriately for the market. This means not under-investing in a market that’s moving fast and growing at a rapid pace, and not over-investing in a market with sluggish growth and poor returns. Basically, when you know your market size, you’re able to find the Goldilocks zone—where the porridge isn’t too hot or too cold, but just right—for your tour business.
Market Size—What Is It?
In a nutshell, market size measures a specific market’s total volume. Unlike your ideal customer, which is a type of customer that you’re gearing your offerings toward, market size is the actual amount of people that fit into this criteria. You can base the calculation on one of a couple of variables, which you’ll need to define clearly because they’re usually quite dynamic.
One approach is to calculate the size based on production figures, while another is to do so based on consumption. If you opt for calculating market size based on production, you’ll base your calculations on the average amount of product—or offering—you can produce, and how many customers would buy-in. In contrast, if you base your calculation on consumption, you’ll be assessing customers’ habits and weighing up how often they’d consume your offering.
When you’ve decided on an approach, you’ll need to do some research. The extent, depth, and quality of that research depends on how much time and money you can invest in it, what you want to know, and how you want to use it to guide your planning for your touring business. The following questions can help you identify those objectives:
- What geographic regions cover the sizing of your market? Is your target audience local, national, international, or a combination?
- What time period does your market sizing cover? Markets fluctuate all the time, so many businesses calculate the size of theirs once a year. However, you can make the calculation for any timeframe that suits you.
- What is the market’s growth level? When answering this question, consider how the market has changed over the past few years, and whether it’s growing or shrinking.
- What issues are impacting the market? Identify issues that could influence future consumer habits, and identify actual or potential barriers such as pandemic-related regulations or border closures.
Research is only part of the process, as you still need to calculate your market size. With that in mind, let’s take a closer look at how to do that.
Calculating Market Size
There are several different ways that you can calculate market size for your tour business. One of the most reliable of those methods is the bottom-up process of reviewing competitive sales.
Be warned, though—such a review takes time, but it offers the benefit of greater accuracy. Do this by contacting as many suppliers of a specific travel or tourism product as possible and asking them how much of that product they sold during a time period. You can then add those figures together to calculate the total market size. Make your life easier by asking a third-party agency to do the research if you can afford to. If you don’t feel comfortable being so blunt about acquiring this type of information, reach out to other operators that you have good relationships with, or ask fellow operators in forums.
An alternative, top-down approach favored by third-party researchers is to ask competitors for their estimates of the size of the market. The calculation then sees those estimates averaged. Occasionally, the estimates obtained from competitors get weighed first before being used to calculate the average market size.
A reliable trade association, such as the American Society of Travel Advisors (ASTA(opens in a new tab)), Association of Independent Tour Operators (AITO(opens in a new tab)), and Association of British Travel Agents (ABTA(opens in a new tab)), can give you an idea of when it comes to market size. If you use this option, be aware that some associations accept students as well as individuals who used to work in the field. As such, you must first check membership categories before making use of data. The state-of-the-market surveys you can obtain from many associations can also help to determine market size.
You should be able to source segmented breakdowns of the readership of controlled circulation titles and other trade publications from their media packs. Take those numbers with a pinch of salt, however, as publications have a tendency to exaggerate readership numbers. Local and federal/national government departments, such as the National Travel & Tourism Office(opens in a new tab), are another source of potentially useful data.
Estimating Market Size—Further Steps
When identifying your market size for your tour business, don’t stop at the above methods. Take it further to gain deeper insights into the size of the market and your part in it.
Define your product’s value—Identify what sets your travel products apart(opens in a new tab) from all the others available. Knowing what gives you the competitive edge helps you determine your market value. There’s absolutely nothing wrong with researching your competitors or other similar businesses in different locations to see what’s working and not working for them.
Define your target audience—Your tour business is not likely to target the entire market, as it includes various individuals from all walks of life. Define the audience for whom your travel or tourism products are best suited. Even if demographically your tour has wide appeal, consider additional points of differentiation—is it an outdoor tour, a cultural tour, a boat tour, etc.—as the tour type will still likely not universally appeal to everyone
Calculate your potential sales—When you know the size of the market, the value your products bring to it, who you’re trying to sell to, and the level of interest in your product, you’re in a relatively good position to calculate your potential sales. You can use market research to find out the latter. Use the result to determine whether the investment and risk of your product are proportionate to your potential sales.
You can calculate potential sales by creating a financial model of your tour business with the data you collected. Find your model’s key assumptions, then use Scenario Analysis or similar techniques to test those assumptions.
In addition to helping you determine your marketing budget(opens in a new tab), identifying the market size and calculating potential sales can help in other ways too. Use the information to further refine your products, especially if the data shows greater interest in similar products. A few tweaks may be all that’s needed to see your tour business gain greater market penetration.
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