Estimating Category Market Demand in the Automotive Aftermarket
Until recently the Automotive Aftermarket was provided data from key channel distributors indicating monthly sales activity and market share for various vehicle part categories. At the beginning of 2012 the consortium of companies that provided these data collapsed. Since then, parts suppliers and others in the Aftermarket have been searching for a new source of data to fill the void and this very issue is being discussed by industry representatives at the AAIA Fall Leadership Days conference in San Francisco.
In this post I propose a methodology for estimating market size and discuss how this estimate of total demand can form the basis for replacing, and perhaps improving upon, the market data previously provided by NPD.
The two key elements in producing category market size estimates are (1) vehicle registration data (referred to typically as VIO, i.e., vehicles in operation) and (2) Replacement Rates.
VIO data is available at various levels of geography (US, State, County, ZIP, Censust tract, and block group) and provided by Experian and Polk. These data are expensive but easy to acquire and utilize. Replacement Rates are different matter. In a previous post I described a process for modeling replacement rates that utilizes consumer survey data from IMR. Combining these elements to produce demand estimates is simple conceptually but requires extensive computational capacity. For each vehicle in the VIO database a Replacement Rate is retrieved and multiplied by the VIO count to arrive at a demand estimate for that geographic unit.
Total Category Demand Per Geography = Count of Vehicles by year, make, model * Replacement Rate for Vehicle by year, make, model.
So, for example, to calculate Category Demand for a particular County, we would start by iterating through each vehicle year, make and model in the County tabulating the count of vehicles and multiplying by the replacement rate for that year, make and model. Let’s say that there are 2,450 ’03 Honda Accords in a particular County and let’s say that the replacement rate for the specific part category is 5.5% for ’03 Accords. So the total demand among 2003 Honda Accords owners for that part category is estimated to be 2,450*5.5% = 134.75 units. Repeating that process for each vehicle listed in the County registration records and summing the demand provides an estimate of total category demand in the County. This calculation process can also be used to estimate SKU-level demand by summing demand for individual vehicles that fit a specific part.
These calculations can provide an estimate of total demand for any geography of VIO and for any individual vehicle or set of vehicles. These are powerful data for Category Management and other marketing functions within the Aftermarket, allowing suppliers to forecast demand for the US, for specific regions or for specific channel store locations and there are many other potential applications.
Calculating market share is a logical follow-on to the market size estimate but requires additional data elements from distribution channels. I hope to cover market share estimation in a future blog post.