Imagine a Saudi home-appliance manufacturer preparing to enter a foreign market with a population of millions. The opportunity looks enticing: every household could be a new customer, and every city an opportunity to expand. But before investing millions of riyals, the CFO asks a question that could change the entire decision: How many households can actually afford to buy our products?

Population size does not necessarily reflect the level of demand, and a large market can become much smaller once a company starts counting customers who are qualified to buy.

How does a market of millions become much smaller?

One of the concepts covered in the International Business course taught by Dr. @Stephen Rosenbaum at Al Yamamah University is market potential: an estimate of the possible sales of a particular product in a specific market over a given period.

The Chain-Ratio Method is used for this purpose. It starts with a total figure, such as the number of people or households, and then gradually excludes groups that do not meet the conditions for using or buying the product.

To understand how this works, suppose a Saudi company plans to sell washing machines in a market with one million households. Hypothetical data indicate that 80% of households have electricity, 75% of that group have running water, and 50% of households meeting both conditions can afford a washing machine.

Using this method, the estimated market shrinks from one million households to 300,000. But that figure does not represent guaranteed sales: some households may already own washing machines, prefer competing brands, or postpone their purchase decision.

Market estimates are not sales forecasts

This is where the distinction emerges between three figures companies may confuse: the total market, the number of potential customers, and the sales a company can actually achieve.

Even if a company identifies 300,000 households qualified to buy, its market share will depend on price, competition, distribution channels, and how much consumers trust its brand.

The accuracy of the estimate also depends on the quality of the data and assumptions used. An academic study by Abu Waheeduzzaman, published in 2008, found that using different methods to estimate international market potential can produce varying results, making it important to choose the right approach carefully.

For Saudi companies planning to expand abroad, market research should not begin by asking how many people live in the target country. It should start by identifying how many consumers need the product, can afford it, and are within the company's reach.

A market may include millions of consumers, but the true business opportunity is not determined by their number alone. It depends on how many can be turned from people with a need into actual demand.

Academic reference:

A. N. M. Waheeduzzaman (2008), Market Potential Estimation in International Markets: A Comparison of Methods, Journal of Global Marketing, 21(4), 307–320.

https://doi.org/10.1080/08911760802206144