The Market Development Index is a very important metric that helps businesses gauge their market growth and the approximate year the market will approach full market penetration. As shown above, it is a simple ratio of current Market Demand to Market Potential. However, most businesses do not think about their market potential. Thus, the first challenge in applying this metric is estimating your market potential.
NARROW MARKET DEFINITION – (Orange Dot)
This medical devices business unit produces a surgical device that is used in heart surgeries. They had limited their market definition based on a certain type of hospital that would do this surgery. The current market demand for this disposable device was 35 million per year. Conventional wisdom was that the market was maturing and would reach full Market Penetration of 45 million devices per year in 2020. These estimates would yield a Market Development Index of 78%. This means that they should expect market growth to slow and begin to saturate in 2020.Market = Maximum Number x Percent Who x Purchase Rate Potential Consuming Units Can Buy Per Year = 300,000 surgeons x 50% x 300 = 45 million units per year MDI = Current Market Demand/Market Potential x 100 = 35 million per year / 45 million per year x 100
BROAD MARKET DEFINITION – (Blue Dot)
The team rethought its market definition following a team discussion around why potential customers were not buying their device. As shown below, this raised the market potential to 75 million surgical devices per year, lowering the Market Development Index from 78 percent to 47 percent. In addition, it will now be 2030 before this market can be fully developed with the broader definition of potential customers. Of course, this greatly changes the required marketing strategies and the potential in sales and profit growth over the next 20 years.Market = Maximum Number x Percent Who x Purchase Rate Potential Consuming Units Can Buy Per Year = 500,000 surgeons x 50% x 300 = 75 million units per year MDI = Current Market Demand / Market Potential x 100 = 35 million per year / 75 million per year x 100
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