TOP-DOWN USER BASE MODEL

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INTRODUCTION

The Top-Down User Base model is a marketing approach targeted at market size estimation and forecasting. Some of the industries this methodology is applicable to are FMCG, Lighting, Furniture and Household Appliances, Healthcare and Life-sciences, IT Hardware and Software, Telecommunications, as well as the supply-chains of Automotive, Aerospace and Capital Goods. It is somewhat less data-demanding than many other models, specifically statistical models, but its accuracy tends to decrease with lower data availability.

The Top-Down User Base Model is a funnel-type approach which starts from the widest possible target group for the product (usually the general population) and during multiple stages refines this target group to the customers which will actually end-up buying it. These multiple refinement stages can vary, depending on the specific product the technique is used for. Below is an example from one of the industries where such approaches are most widely used.

TOP-DOWN USER BASE MODEL IN PHARMA SETTING

Let’s imagine a Pharma company is launching a drug for the treatment of a specific disease. In the most simple of cases, the data needed to successfully estimate the potential annual market for the drug consists of just five numbers – the general population in million (e.g. X million), the prevalence amongst the general population (e.g. A), the diagnosis rate (e.g. B), the purchase rate (e.g. C) and the potential total annual spend on a single individual’s treatment (e.g. P).

There is little need to comment on the first number, as even in tier 2 developing countries national statistics and demographic projections are fairly accurate.

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The prevalence ratio is somewhat different. For most of the wide-spread diseases, there are numerous clinical studies done worldwide, including also tier 2 developed countries, so in the case of these diseases estimating the prevalence is a fairly easy task. For niche diseases, the prevalence rates are only really available for (some) developed countries; however, prevalence rates of these niche diseases quite often are geographically fairly uniform.

The diagnosis rate is the third component of the picture. It is often estimated as part of clinical studies (e.g. a study focuses on a random sample of 10 000 individuals, out of which e.g. 500 have the disease and only 50 have been diagnosed previously – this gives a diagnosis rate of 10%), but can also be estimated using other techniques (e.g. Cluster Analysis).

The purchase rate is the fourth piece of the puzzle. For patients with insurance reimbursement schemes, the purchase rate is simply equal to the share of the population covered by the specific insurance. For patients without insurance coverage, it can be calculated using data on the income distribution and the “survival minimum” (or another relevant income threshold) for the specific country, whereby only patients which have sufficient income to pay out of pocket whilst still covering the survival minimum are likely to purchase.

The potential annual total spend per individual is equal to the insurance reimbursement plus any out-of-pocket co-payments.

TOP-DOWN USER BASE MODEL

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As a result, in this simple case the total potential market for the drug is equal to:

X x A x B x C x PIn a more complicated case, the different stages of the process will have different subgroups of potential buyers with different coefficients and their respective weights in the calculation (e.g. in our case patients aged 20-65 with a prevalence of A and patients aged 65+ with a prevalence of O). It is imperative to examine each of these subgroups as thoroughly as possible, not only to ensure the maximum accuracy of the estimation, but also as building blocks for additional quantitative analysis, which can aid for example in the optimization of marketing spend.

APPLICATIONS OF THE TOP-DOWN USER BASE MODEL

This type of approach is very commonly used in Pharma and some other Healthcare businesses. What many companies outside of these domains do not realize however, is that a similar approach is applicable to their businesses as well. As a brief example – a software company can use a similar approach for its new server platform application, whereby X is the total number of hardware systems, A is the share of potentially targetable hardware systems, B is the share of the specific targetable server platform, C is the purchase rate and P is the cost of the software application.

TOP-DOWN USER BASE MODEL

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GEMSEEK’S EXPERIENCE

GemSeek has significant in-house experience tailoring this methodology to various businesses and countries, including healthcare markets in tier 1 and 2 developing countries in Asia as well as FMCG businesses in CEE.

Can we help you? Contact us at: office@gemseek.com.

We will offer a free consultation and an inventory of the data sources available for your industry and markets.

TOP-DOWN USER BASE MODEL