Tips and Tricks How I Conduct Product Market Analysis | Start-up

The Importance of Product Managers for the Success of a Digital Product

Helur✌🏼I’m Lu, a Fractional Product Manager specialized in Start-up & Scale up companies. Welcome to the first edition of the Product blogpost sequel! Every Wednesday for 7 weeks, I tackle topics about building a✨Product Strategy✨.

These are the topics for the first edition of the Product blogpost:

1. Introduction to Product Strategy
2. Tips and Tricks How I Conduct Product Market Analysis
3. Create Your Product Vision and Mission
4. Understanding and Analyzing Customer Behavior
5. Setting Up Your OKRs
6. Effective Implementation of Prioritization Frameworks
7. Creating a Product Roadmap

Market analysis is the process of gaining a deep understanding of the market landscape to identify opportunities for your product to succeed. This involves researching market dynamics such as target markets, customer needs, industry trends, and competitive landscape.

In a startup environment, it is crucial to conduct thorough market analysis to gain a deep understanding of the market landscape and identify opportunities. This understanding enables you to develop a product either from First Principles, creating something entirely new, or by Reasoning by Analogy, leveraging existing solutions.

The reason I mention these two approaches is that they help structure the problem-solving and decision-making process, allowing for their effective integration into market analysis to achieve a better understanding and durable strategy development.

You can use these approaches individually or in combination. Let’s explore these concepts further.

Image created by Lucienne Lacle

First Principles

First Principles thinking involves deconstructing a problem to its most basic, foundational elements and building a solution from these fundamental truths. This approach effectively creates a product from scratch with an entirely new concept, stripping away all assumptions and pre-existing notions to enable innovative and groundbreaking solutions rooted in the core principles of the problem.

Steve Jobs’ perspective on first principles thinking complements this approach. He once said, “You’ve got to start with the customer experience and work back toward the technology — not the other way around.” It emphasizes the need to focus on fundamental elements and customer value, stripping away assumptions to innovate effectively (Jobs, S., as cited in Service in Industry Hub, 2023).

For example, when OpenAI set out to develop ChatGPT, they implemented first principles thinking to revolutionize the field of conversational AI. Instead of relying on existing chatbot frameworks and gradual improvements, OpenAI broke the problem down to its most basic elements and built a solution from the ground up.

They identified the fundamental principles necessary for creating an advanced conversational AI which were:

• Understanding natural language
• Generating coherent and contextually appropriate responses
• Continually learning from interactions

Through first principles thinking, a conversational AI that far surpasses traditional chatbots in its ability to understand and engage in natural language conversations was created. (But of course it wasn’t an easy journey for OpenAI).

Reasoning by Analogy

Reasoning by analogy involves solving problems and making decisions based on the similarities between the current situation and past experiences or known solutions. This approach relies on comparing and analyzing new challenges and existing concepts, using established methods and ideas to address the problem at hand. While it can provide efficient and practical solutions, reasoning by analogy may also limit innovation by depending heavily on previous frameworks and avoiding fundamental reevaluation of the problem.

After the groundbreaking development of ChatGPT by OpenAI using first principles thinking, numerous companies have adopted reasoning by analogy to implement this advanced conversational AI into their existing frameworks and processes.

For example: Marketing firms and content creators use reasoning by analogy to integrate ChatGPT into their content creation processes. By drawing parallels between the creative capabilities of human writers and ChatGPT, companies employ the AI to generate blog posts, social media content, product descriptions, and more. This allows them to produce large volumes of content quickly while maintaining quality, akin to having a team of versatile writers at their disposal. This analogy-driven approach helps them scale their content efforts without significantly altering their existing creative workflows.

Sam Altman mentioned, that there is no better time than now to establish a start-up due to their first principles designed product that many companies can now use reasoning by analogy designed products.

Market Analysis

Depending on the problem solving and decision making approach mentioned above you could have a better guide as to how to conduct your market analysis. However, before delving into this paragraph, I’d like to share an impactful quote from one of my favorite authors, Jez Humble.

Startups beging by exploring new opportunities through business model innovation: they search for a new business model that is aligned with the founders purpose and vision, delivers value for customers, and can drive profitability and growth of the organization. Once it is found, the business model is exploited by growing and scaling it, finding ways to drive down costs, improve efficiency and increase market share and customer base. Humble, J., Molesky, J., & O’Reilly, B. (2015). Lean Enterprise: How High Performance Organizations Innovate at Scale. O’Reilly Media.

This quote is impactful to me because it highlights the importance of identifying and understanding your market as the first step in creating a successful business model.

The steps below is how I usually conduct a market analysis. Hint: see my golden tip below.

Image created by Lucienne Lacle

1 — Identify the Target Market

The first step I take to identify the target market is to thoroughly understand the market I aim to serve. This involves gaining a comprehensive understanding of the market landscape, including the market size, the number of potential customers or companies, the growth potential, and the presence of competitors offering similar solutions. This is crucial to determine whether the demand for my product or service is expanding or not.

Additionally, I analyze my main competitors, evaluating their strengths and weaknesses, and identifying opportunities to differentiate my product or service from theirs. Sometimes the competitor landscape is very large so you can’t really conduct a SW (short for SWOT) of all the competitors. I would then advice to select only a handful of your direct competitors. It will make it much easier for you.

Click here to view the target market analysis template.

2 — Segmenting the market

After thoroughly understanding my market, I identify segments that offer the most opportunity for impact and user value. I then delve deeper into users’ demographics, psychographics, and behavioral patterns to better understand their needs.

Demographics refer to measurable characteristics such as age, gender, income level, education, location, marital status, and family size. Psychographics pertain to psychological traits including aspirations, values, lifestyle preferences, interests, hobbies, and influences on purchasing decisions.

Behavioral segmentation, on the other hand, involves understanding how customers interact with and use products. This includes analyzing their purchasing behavior, brand loyalty, product usage rate, benefits sought, and readiness to buy. For example, some customers may be frequent purchasers who buy regularly and seek premium features, while others might be occasional users looking for basic functionality. Understanding these patterns helps to tailor product offerings more precisely.

Together, insights from demographics, psychographics, and behavioral patterns enable me to create a more targeted and effective product strategy. By addressing the specific needs and behaviors of different customer segments, I can develop products add value to the users.

Click here to view the market segmentation analysis template.

3 — Identifying customer needs

To effectively identify customer needs during the market analysis phase for a digital product, I start by identifying customer needs and pain points, determining the problems my ideal customers face, and how my product or service can solve these issues to improve their user-experience.

The single most important thing to remember about any enterprise is that there are no results inside its walls. The results of a business is a satisfied customer. — Peter Drucker.

This is can be done in multiple ways which are the following:

1. Designing surveys and questionnaires to gather quantitative data about customer preferences, pain points, and expectations, using tools like Google Forms, SurveyMonkey, or Typeform to distribute them widely.
2. Surveys is complemented by one-on-one interviews to gain qualitative insights into potential customers’ daily challenges, current solutions, and desired improvements.
3. Reviewing customer feedback from similar products on websites, app stores, and social media helps reveal common themes of unmet needs or recurring problems.
4. Conducting a thorough competitor analysis is also crucial; by analyzing competitors’ products, features, and user feedback, I can identify both their strengths and areas for improvement, uncovering opportunities for differentiation.
5. Engaging in social listening by monitoring social media platforms, forums, and online communities where my target audience discusses relevant topics, using tools like Hootsuite or Brandwatch to track mentions and sentiments, provides valuable insights.
6. Lastly, mapping out the entire customer journey from awareness to purchase helps identify pain points and opportunities at each stage, enhancing my understanding of the context in which my product will be used and highlighting the most valuable features.

Conclusion

In conclusion, identifying and understanding customer needs is a multifaceted process that involves a combination of quantitative and qualitative research methods. By thoroughly analyzing the target market, segmenting it effectively, and identifying specific customer needs and pain points, I can develop a product strategy that meets the demands of my users. Additionally, in a later stage, the market segmentation and customer needs information can serve as a foundation to create user personas. These personas will help tailor the product or specific features within the application to cater to distinct user groups, thereby enhancing user satisfaction and engagement.

⭐️Golden Tip ⭐️

This step-by-step market analysis guide I just described doesn’t always need to be followed like you are marries to it 😆. Each time I start building a new application, the process varies so much because the industry is so dynamic that it’s impossible to adhere to the same methods consistently. Sometimes, instead of a market analysis structure, I use a product analysis approach, focusing more on analyzing the features competitors offer.

I hope you’ve enjoyed this week’s reading! And I would be excited to hear from you via any of my socials below!

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