Research 101: The Five Levels of Market Measurement

Market Measurement aids marketing executives in understanding market or sales potential which is relevant to a specific geographical area, period of time, product and/or market segment.

For tourism, many of the applications of market measurement relate to the size of the pleasure travel market (overall) and the potential pleasure travel market for a specific destination.

There are five levels of market definition:

The Five Levels of Market Measurement Graph.gif

The steps to determining market potential for a destination are as follows:

Level 1: Total Market

The total market consists of the total number of individuals residing in the geographical area of interest. These population figures are usually available from census data produced by the government statistical agency.

It is important to ensure that the population estimates provided by the government statistical agency exactly match the target population for the study. In doing so, it is important to consider whether any of the screening criteria – such as age, gender and region – for the target population needs to be considered before establishing an accurate total market population. For example:

  • If the target age for the study is adults 18+, children and youth (aged 0 to 17) would need to be removed from the population estimates.
  • If the target gender for the study is men only (as it might be for India), adjustments would need to be made to restrict the population counts to the single gender.
  • On occasion, the study will be regional – focusing on several regions or cities only – and not national - whole country. In this case, only the population counts for the regions or cities of interest should be used in determining the total market population.

Level 2: Available Market

Using the total market as a base, the next step is to determine the available market, i.e., how many of these individuals have no constraints (financial, access, or otherwise). The available market often also stems from the screening criteria that is in place for the study – i.e., whether they are travellers (those who have taken, or plan to take, a vacation trip within a certain timeframe), the distance of the trip (e.g., outside the immediate region), having the means to travel long-haul (defined by socio-economic or income level), etc.

As an example, for tourism studies in China, in considering the correct population to use for Beijing, it is important to consider whether the research sample will be restricted to the two ‘non-agricultural’ (urban) districts of Beijing – Core District of Capital Function and Urban Function Extended District – or whether the research sample will also cover the two ‘agricultural’ districts of Beijing – New District of Urban Development and Ecological Preservation Development District. It is our recommendation that the two ‘agricultural’ districts be excluded from tourism studies as most of the population in these areas does not have the economic means or horizon for outbound travel.

Level 3: Potential Market

The potential (or target) market is a broader estimate of the market size based on expressed interest among all of the available market. This is usually based on those very or somewhat interested in visiting the destination in a certain timeframe. Depending on whether immediacy comes into play, the potential market can be taken one step further to include only those who are definitely or very likely to visit the destination in a certain timeframe. This Immediate Potential is a more conservative method of calculating market potential.

Level 4: Served Market

Once the potential market is known, it can be used to determine the potential for the served market, that is a particular region (based on current levels of interest in visiting the region), a particular product (based on overall interest levels for the product), or a particular segment (based on the number of potential travellers in that segment).

Level 5: Penetrated Market

The penetrated market is the final layer that looks at the number of committed travellers – those who have made a purchase decision.

A lot of time working through the numbers usually results in a simple table, but the simple table shouldn’t imply it was a simple task to accurately work through the steps. Using the results from the 2010 Global Tourism Watch summary report [1] and statistics from the 2011 Annual Report [2], the market definition for China was:

Market Measurement for China Graph.gif

To close, it is important to consider that market measurement represents demand brought by a defined consumer group in a defined geographical area in a defined time period in a defined marketing environment in a defined marketing program. If the marketing (or other) environment changes, the curve will move either upwards of downwards accordingly. 

If you are not satisfied with the present demand, roll up your sleeves and take action – lower prices, improve access, increase promotion, grow interest, or contact Summus Insights for help! It is more under your control than you think!

[1] Global Tourism Watch 2010, China Summary Report, Canadian Tourism Commission.

[2] Annual Report 2011, How do you market a country? Canadian Tourism Commission.