According to the managing director of a research firm, the way they go about doing their research is they look at the business situation at hand - they look at a couple of internal data sources, the population, how many people use the product, how many people don't and calculate what the probability is. This gives them an understanding of the business and growth opportunity.
Is this the same way you conduct market research as well?
For example, you are manufacturer of cookies. You look at your sales figures and the industry average. You find out how many people eat cookies against the population. And there you have the potential market for your product.
Of course, this is a simple way of looking at market research. The actual one may include more metrics and complications.
But isn't doing a market research based on the potential the same as building castle in the air?
A man opened a cake shop in the business district as his target market is the working class ladies. He reckon that there are about 150 to 200,000 people working in that area and 50 percent are ladies. So he has a potential market of 75 to 100,000 customers. If he can get 1 percent of them, i.e. 750 to 1,000 customers, each paying $10 on average, every month, he would have $7,500 to $10,000. Of course, he's not going to believe that he can get only 1 percent cos he' seeing potential. And he believes in his product. There'll be customers to refer their friends, families and relatives. There'll be corporate customers. There'll be months of high sales during the festive periods.
What about these?
How is he going to get people to even try out his product for the first time?
How is he going to attract existing customers of competitors to switch over?
How is he going to attract customers to come back?
How is he going to get customers to refer?
How is he going to get customers to remain loyal to him?