6. POA Techniques
6.18 Product-Market Fit
Guide to Product Ownership Analysis
Purpose
Product-market fit, a concept popularized in the start-up world, is used to identify a strong market where a product can thrive. It is identified as one of the foundational steps in building a successful product by understanding who the customers are, their needs, and how the product aligns to those needs.
Description
A good product-market fit happens when customers help sell the product, or when demand exceeds supply. Many organizations fail because they waste money on products that the customer does not want or that does not provide the desired outcome.
Understanding and using product-market fit will inspire new ways to create value for customers and growth for a business. Product-market fit is achieved when the company's value proposition, customers, and distribution channels co-exist in a balanced ecosystem.
Product-market fit is beneficial in:
Start-ups: The product-market fit is an indicator of start-up growth, and it needs to be measured and tracked correctly. For example,
The important elements in a product-market fit model include:
Description
A good product-market fit happens when customers help sell the product, or when demand exceeds supply. Many organizations fail because they waste money on products that the customer does not want or that does not provide the desired outcome.
Understanding and using product-market fit will inspire new ways to create value for customers and growth for a business. Product-market fit is achieved when the company's value proposition, customers, and distribution channels co-exist in a balanced ecosystem.
Product-market fit is beneficial in:
- Understanding product positioning in the marketplace,
- Helping determine the most-needed product features to excite the customer, and
- Ensuring continued alignment between the product and the customer.
Start-ups: The product-market fit is an indicator of start-up growth, and it needs to be measured and tracked correctly. For example,
- Snapchat is a messaging and engagement application that targets younger people with specific needs. It is a successful product that needs to be continuously measured and tracked.
- Facebook is established, but to continuously improve desirability, it added the Marketplace feature where people can sell and buy items locally. The feature relies on people trusting the seller since they are visible on Facebook and can arrange in-person meetings by using the messaging feature within the application.
The important elements in a product-market fit model include:
- Problem Statement: Defines the problem, underlying need, or opportunity in the marketplace.
- Solution: A high-level description of the solution and how it will meet the problem statement.
- Value Proposition: Articulates the value being provided to the customer (through the product) and the unique characteristics of the product that differentiate and provide an advantage over competing products.
- Customers: Identifying those who would desire the product and gain value from it.
- Assumptions and Risks: Are there any assumptions or risks to be aware of while analyzing the product-market fit?
- Metrics: Track, measure, and analyze how well the product-market fit is and continues to be over the long-term.
- Identify your customer or customer segments:
- Conduct market research to understand the target market, and
- If necessary, create market segmentation to group customers with similar needs and behaviours.
- Get to know the customer on a deeper level:
- Understand their personal and impersonal needs, and experiences. Consider using techniques such as personas, customer journey maps, and observations.
- Find specific needs that can create an excellent market opportunity.
- Evaluate the top competitors and compare their product offerings.
- Define a high-level solution idea and how it meets customer needs.
- State the value proposition:
- Assess the product features that are otherwise missing or not on par with customer expectations that will excite customers, and
- Identify unique product feature (s or services that will provide a competitive edge.
- Plan the MVP feature set or product increment:
- List the minimally required features to satisfy customers' needs. Consider applying the 80/20 rule where 20% of the features deliver 80% of desired customer value.
- Other key features that increase a product's desirability can be added over time.
- Elicit feedback:
- Share the product increment with potential customers to gauge product desirability,
- Interact with potential customers or buyers by:
- Encouraging participation,
- Noticing user behaviour, and
- Developing insights.
- Categorize similar feedback to understand common pain areas and find ways to improve the product.
- Measure product-market fit:
- Quantitative
- 40% rule: 40% of your surveyed customers think that the product is a "must-have",
- Churn rate: Rate at which users stop buying your product (or doing business),
- NPS score: Net promoter score is the willingness of customers to recommend the product to others,
- Growth rate: Rate of annual change in the product sale as a percentage, and
- Market share: Portion of the market owned by the product.
- Qualitative:
- Word of mouth: Customers who are recommending the product to other potential customers, and
- Media buzz: Media and other online channels have generated an interest in the product and provided positive reviews through blog posts, videos, TV shows, etc.
- Quantitative
- Avoid Complacency:
- Keep monitoring the market dynamics to ensure the product-market fit remains aligned, and
- Focus on continuous improvement, and
- If needed, add new features, or adapt existing features.
| Problem Statement | Solution | Value Proposition | Potential Customers | Competitive Landscape | Assumptions/ Risks | Metrics |
| What problems need to be solved? What is the opportunity that you see in an untapped market? |
What is the solution? How will it solve the problem? Is this a workaround rather than the actual solution? |
What is different a specific product offering that is not in the market? What is the Unique Selling Proposition? What is the market differentiator? |
Who are the potential target customers? Has there been growth in the customer base or across other customer segments in the future? |
Who are the competitors? How do competitors products compare to the product being developed? |
Are there underlying assumptions to consider? What are the risks associated with these assumptions? |
Examples For any Industry I. 40% rule ii. Churn rate iii. NPS score iv. Growth rate v. Market share Examples for Website/app initiatives: I. 40% rule ii. Bounce rate iii. Time on Site iv. Pages Per visit v. Returning visitors vi. Customer Lifetime value |
Considerations
| Strengths | Limitations |
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Tips for Success
- Product-Market fit may be created in the initial phases of the product conceptualization or during any product launch or release to the customer. The Product-Market Fit is verified at the end of each customer release and feedback will drive the decisions for the backlog in future releases.
