Chapter 2: Developing Market Understanding — Idea Conceptualization & Product-Market Fit Validation

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Opportunities for new business/product exists all around us. New technologies are constantly emerging and market is always changing.

A Product manager should be able to proactively evaluate which opportunities are promising and which are not; which ones look attractive enough to be pursued and which ones are better left for others to go after; and finally which ones are not yet ready for productization.

The “Product Opportunity Assessment” is a necessary step as it not only underlines what are the prerequisites for success of a good opportunity, but also prevents time and money wastage on poor opportunities. For Product Opportunity Assessment following are the considerations to be taken –

Product Opportunity Assessment

Start off by writing down the problems that your intended users face. Once you’ve written those problems, determine whether they are a Tier 1 problem.

What is a Tier 1 problem ? — the problem you are looking to solve, is one of the top 3 problems that the potential customers are experiencing. Example, for a CEO of an e-commerce business, the problem list (arranged in order of importance) would look like this –

  1. Get more sales
  2. Better manage deliveries
  3. Better customer support
  4. Optimize marketing spends
  5. Increase product selection
  6. Outsource legal & payroll services
  7. Easy cash-flow management
  8. Sourcing hassles

If you are planning to launch a vendor management portal, it wouldn’t be something that’s on top of the CEO’s mind. They’ll be so fixated on solving their first few problems that they won’t have time or budget for your solution (even if you have the greatest product).
 Experts say that you should definitely avoid building product that solves a “nice-to-have” problem — that’s what is termed as a vitamin. It’s nice to have, but not absolutely necessary for your customers to pay for a solution.

You should always aim to develop solutions that are Pain-Killer, rather than Vitamin.

To validate this, reaching out and interacting with your core target users is the best way to find out. Post your interactions, you’ll have a knowledge on how your core target group handles the problem. It might be through a product or a manual process or simply using some kind of hacks through a bunch of tools.

It is important to understand the whole workflow so that you could search for the pain which could be-
— Time — Complexity — Cost

– or just Frustration

he following graph (inspired by Dean Olsen) gives an accurate illustration on how to rank the opportunities –

To identify your best users, you need to get deep into the market landscape and understand what all users are present along with their behaviour.
 The are four main approaches to segmenting your users are –

a. Demographic based segmentation, uses quantifiable data such as age, gender, marital status, income, education level, geography, etc. Suppose you want to develop an app for moms to get information and track vaccination for babies easily. You could describe your target customers demographically as women 25 to 40 years old who have one or more children under the age of three.
 However, do keep in mind that this segmentation technique might provide information only at a surface level.

b. Usage (Behavioural) based segmentation, uses Decile or Pareto analysis to drill down and segment users based on the usage of an existing solution. Say we want to segment users of an Online Bill Payment & Recharge App. There would be two things that the company would like to encourage in their users. One, they’ll want users to do as many Non-Promo transactions as possible. Second, they’ll want them to use the app for multiple use-cases (e.g. if a user pays phone bill, they’ll also want the user to recharge DTH or pay electricity bill through the app).

In this case, user can be classified using following matrix –

Usage (Behavioural) Segmentation

c. Attitudinal based segmentation, creates customer profiles based on psychological factors such as attitudes, opinions, values, and interests. Creating such clusters is difficult because of limitations on available data; however, an attitudinal based cluster if established can provide deep insights on the motivating factors behind purchasing decisions of your users.
 Let’s dive into a B2B product example. Say, we want to understand users of a marketing content creation tool. We’ll create segmentation based on users having different attitudes as shown to zero in our best target.

d. Need based segmentation, uses conjoint analysis to divide the market based on customer needs. It helps separate groups based on functional performances. A very good example can be a wireless Wi-Fi security camera (like Dropcam). It can be used by working parents to keep track of their child, for home owners for security usage or for pet owners to keep a check on their pet while they are away.

Even though these users share a high-level need; however, they have different actual needs. Dropcam understands this difference and tailors different product features and marketing techniques suited to different users in each segment.

Determining the size of the market helps us understand — — Whether a market opportunity would justify the investments — What should be the benchmark (against the competition)

– Set appropriate business goals

There are two main approach to market sizing. The standard approach consists of —

  • Referring to published data (which might not be available for small markets or unorganized sector).
  • Rolling up competitors sales (possible for concentrated markets). One can refer to financial filings or sources like Dun & Bradstreet, etc.
  • Using customer surveys (to determine spends in a certain market).

However, for many cases the above standard approaches are not feasible or are too costly. In that case, one can make use of alternative approach which relies on using estimation to round up market size in volume or units.

The model relies on two types of inputs:
 Basis data — Quantitative data available from published resources or a previously conducted survey.
 Relational data — The quantitative data that provides the link between the basis data and the target market size.

Market Size Estimation

There are two approaches for using the estimation (alternate)technique — 
 Top-Down approach, where we generally consider broader data (population in a region or number of production facilities, etc) as our basis data and then postulate relational data based on fraction of market of our interest; and vice-versa for Bottom-Up approach.

Example of Top-Down approach: Say we want to estimate market size of Home AC in India. This is how we estimate the market size —

Top Down Estimation Approach

Example of Bottom-Up approach: Say we want to estimate of Revenue from a Burger King Outlet. This is how we calculate the estimates —

Bottom Up Estimation Approach

The estimation techniques might not give correct results, but they’ll be accurate enough to base some decisions on.

The only thing that’s good about ever growing competition is that you have great amount of data to understand the current market.
 A good starting point is a blank Google Sheet. That’s because, taking notes would help you organize the inputs while you’re jumping between browser windows, collecting information on the competitive landscape.

So, let’s start with a hands-on method — Suppose you’ve come up with an idea for a live chat software (used as Help Desk) and want to research how does the space looks like.

Market Intelligence using Google

A good starting point can be a simple Google Search — “Live Chat Softwares”.
 The search results would populates the ads by companies targeting the keywords as well as direct link to the companies operating in the space .

Quora is yet another source to find what solutions exists in the space as shown in the following screenshot –

Market Intelligence using Quora

Product Hunt — is a gold mine for PMs, Entrepreneurs or simply any person interested in tech. The good thing is once you do a simple search on Product Hunt and select a product, you get a list of related products which you could check out.

Example, I did a search using “Live Chat”. This is what I get –

I’ll select (say) LiveChat. I’m navigated to the product page where I have access to number of related products (as shown in the list to the right in the following screenshot). This could help me provide a list of similar solutions or products existing in the market.

Next, you can make use of sites providing information on similar product or companies –

AlternativeTo — is not the only site of its kind; however, it is one of the most complete and really useful site available. When you search for something (a single company), you get a number of alternative possibilities, most of which you’ll never know that they exists in the market.

G2Crowd / Capterra — If you want to research solutions for businesses, these two sites would be the best bet.
 You can get a detailed information on Company profile, Reviews, Product Features and Pricing.

Crunchbase — could help you specifically on getting information on company profile, investment, etc.

What next?? — This is when you start browsing the app or sites of each of these competing player and start listing down all these companies along with profile, pricing and feature set into a table.

Competitive Landscape Table

Look at TechCrunch Deadpool list — if companies or products like yours have failed, why do you think they failed.

Once, you’ve identified your core competing products or solutions, you could make use of following websites like similarWeb or Alexa to build further intelligence on the traffic.

Similarweb can help you provide information about traffic and traffic-acquisition strategies. It would enable you to determine how the competing companies are acquiring audience and what are the typical touch-points of your audience to help you discover ways of tapping into your target market.
 Following is the information that I got for Intercom –

You could also check — Alexa, Semrush, Google Keyword Planner.

Whether your target users use any existing product or not, It’s really important to look for pain in the existing solutions or process work-flows.
 You need to develop a thorough understanding about what your users dislike about the current process flow. What do they need to make their job easier or faster?

You would not want to launch a “me too” product.
 It’s okay to have a similar feature as a baseline, but that should be less than 80% of your product. The rest 20% should be distinctly better from the existing solutions.

Finally, you can make use of a pretty good screening process (as discussed in this HBR article) that talks about developing RWW matrix.
 R — Is it Real?
 W — Can we Win?
 — Is it Worth doing?

[ Previous: Chapter 1 — What is Product Management & What does a Product Manager do? ]

[Next: Chapter 3 — User Research — Learning about users & their needs]

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