Importance of Market Research for the Product Strategy
To create a winning product you need to uncover customer’s needs, pain points, wishes, desires and address them in a way to create benefits for the business. To put it in another way, we need to drive business results by delivering compelling value to customers.
For this purpose, you need to understand a market deeply to know whom to target, which needs to fulfil, and what value to deliver to stand out from competitors. This understanding is achieved through market research, results of which are put in the product strategy.
According to Roman Pichler, a product management expert specialised in digital products, a product strategy consists of the three elements, namely market and needs; key features and differentiators; and business objectives as the picture below shows.
These three elements are crucial for the development of the successful product strategy. I suggest starting with the element “Business Objectives”. The product strategy should contribute to the business vision, strategy, and objectives. The business and product cannot thrive in isolation from each other. Business needs shape a product. Moreover, the business strategy shows how much effort you need to put into market research.
The Scale of Market Research
The product should work for the business. Thus it is extremely important to start with the understanding of what is essential for a company and why it hires your team. This knowledge helps to understand the scale of market research.
Before you start the research, try to figure out which innovation strategy your product should execute. For example, a company may want to improve an existing product to retain and attract customers in the market it already targets. Most likely, a product team doesn’t need to spend much time on strategic activities including market research in this case. I think it may start doing continuous product discovery by conducting customer and user research on a weekly basis to find opportunities to grow.
A company may want to innovate an existing product or create a new one to target new existing markets either to achieve product-market fit or grow. If so, market research plays a vital role in the development of an innovation strategy at the company and product level. It helps to understand barriers and opportunities to grow. To expand its business in a new market, a company needs to create a market strategy, product strategy, and business model from scratch. Since company knowledge about this market may be limited, a product team needs to have a proven market research capability to be able to look into various market variables such as market needs, competition, market size, market structure, etc.
Market
A market consists of target customers and users: the people who are likely to hire your product. You need to figure out who those people are to know whose needs, pain points, desires to address. There should be a clear distinction between customers and users. Users are people who use your product. Customers are people who buy your product. Both hire your product to get a job done. If you enter the consumer market, most likely customers and users are the same people. In this case, you don’t need to talk to customers and users separately to identify needs. If you want to target the enterprise market, you should have insight from end-users as well as people who make decisions on the acquisition of products.
Many companies build a trap by creating markets around their products and services. However, it is a path to failure. Companies such as BlackBerry, Kodak, Blockbuster, Nokia made this mistake and failed.
According to Tony Ulwick, the creator of Outcome-Driven Innovation (ODI), markets should be created around jobs to enable target customers and users to hire your product. For example, companies that create digital music services such as Spotify, Apple, Pandora, SoundCloud target the same people whose functional job is “listen to music while on the go”. And if you have a chance to create a product that does this job better and cheaper than competing solutions, you can dominate the market as Spotify does. If you don’t have enough resources and want to take market share away from Spotify, you need to disrupt the market.
Needs
A market has many needs, wishes, desires, pain points. You should identify them. Once you define who are your target customers and users (e.g. you may use personas technique to this end), start talking to them to validate your assumptions about their goals, characteristics, behaviours, and attitudes. This activity helps to understand deeply what customers and users are lacking. For this purpose, you need to hire qualitative research, the market research method that yields deep insight into customers’ and users’ needs, motivation, and behaviour.
Methods of qualitative research include focus groups or group discussions, mini groups, creative workshops, face-to-face interviews, online group discussions, in-depth interviews, etc.
Needs can be written in the form of outcomes and opportunities. You can use the Opportunity Solution Tree by Teresa Torres to structure the customers’ and users’ needs and align them to business needs.
Credit: Teresa Torres
Segmentation of the Market
Market segmentation is the process of dividing a market of potential customers and users into groups, or segments, based on different characteristics.
I would like to consider two methods of market segmentation by:
- taking into account demographics, psychographics, behavioural attributes, geographic regions, industries or verticals, company size, etc (customer-based segmentation);
- taking into account unmet needs (benefit-based segmentation).
If you break up a market into groups by using the customer-based segmentation method, you may say that single women aged 18–30 from Poland relate to the first segment, while the second segment consists of the same target group from Brazil. Most likely, this segmentation works when, for example, a company wants to attract new customers and increase its share of the market the company already entered.
If a company wants to penetrate the new existing market or disrupt it, I think benefit-based segmentation is the best choice. This method helps to focus on creating segments around unmet needs and reduce risk to overlook people who can benefit from your product.
Imagine you want to get the following job done: “find a repair team for my living space”. The first segment may include people who wish to find somebody to quickly fix some problem, e.g. replace a broken window or change a lightbulb. The second segment may consist of people who wish to find the team which can make a complete renovation. There are benefit-based segments. It is said nothing about age, demographics, and behaviour.
Each segment contains the underlying needs to be identified and put in the Opportunity Solution Tree.
Picking the Right Segments
Different segments can result in different products. Therefore, it is extremely important to target those segments which provide the biggest opportunity to grow. Some segments of customers struggle more than others to get a job done.
The attractiveness of a segment can be determined by the following criteria: how strong is the need, how big is the segment, how it is served by available solutions, entry barriers, etc.
You need to know whether a segment is overserved and underserved. According to Tony Unwisk’s ODI, the “opportunity algorithm” should be employed to “to determine which outcomes are important to customers, and not satisfactorily achieved with the solution(s) they are currently using to get the job done.” You need to conduct quantitative research to collect these data. They should help to make a decision in which way every segment needs to be targeted.
Final Thoughts
Deep knowledge of a market shapes successful products. Market research is an activity which is a must to develop a strategy for a product that enters a new market either it already exists or not.
Market research, including qualitative and quantitative methods, helps to define target customers and users, uncover their needs, create and prioritize market segments, and figure out which needs should be addressed to benefit the business.
