Whether you’re building a start-up or expanding your investment portfolio, the most important part of the due diligence process is knowing how to measure product market fit accurately.
Being an ideas person is great, but turning a vision into a profitable business is an entirely different beast. How do you know if people will actually want to buy what you’re selling? How do you assess whether there’s a real market opportunity for your product or service?
The answer lies in understanding and measuring product market fit.
After reading this blog, you’ll be better positioned to:
- Understand what product market fit is (and why it’s important)
- Learn how to measure product market fit
- Use tools to assess product market fit
So, let’s get started.
1. What Is Product Market Fit
2. How To Assess Product Market Fit Quickly
3. Why Is It Important To Find Your Product Market Fit?
3.1 Poor product market fit case study
3.2 So, what went wrong?
4. How To Measure Product Market Fit
4.1 How to measure product market fit step 1: Competitive analysis
4.2 How to measure product market fit step 2: Target market analysis
4.2.1 Who are your potential customers?
4.2.2 How big is the market?
4.3 How to measure product market fit step 3: Minimum viable product
5. How To Use Your Insights
6. Get Started With Symanto
What Is Product Market Fit
Product market fit is the degree to which a product satisfies a strong market demand. In other words, it’s about finding a market for your product where people are willing and able to pay for it.
You can think of product-market fit as the sweet spot between what a customer wants and what a business can provide.
How To Assess Product Market Fit Quickly
If you’re not sure whether your product has found its market fit, ask yourself these questions:
- How easy is it to sell my product/service?
- How much do customers value my product/service?
- How much are they willing to pay for it?
- How many potential customers are out there?
- How much of the market share can I realistically capture?
If you’re not seeing strong demand for your product, or if customers are only willing to pay a very low price, then it’s likely that you haven’t found your market fit, and you’ll need to conduct further investigation to find out what’s going wrong.
Why Is It Important To Find Your Product Market Fit?
Product market fit is important because it’s the key to profitability and sustainable growth.
If you don’t have product market fit, then no matter how good your product is, you’re not going to be able to sell it, and your business will quickly fail.
Poor product market fit case study
To illustrate the importance of assessing your product market fit, you can look to any number of failed start-ups.
One notable example is Navdy, which sold heads-up display (HUD) GPS devices that could be retrofitted to any car.
The business pitch was quite simple. Navdy devices projected a transparent display onto your windshield, so you could see turn-by-turn navigation without ever taking your eyes off the road. This type of augmented driving device was increasingly more common in luxury vehicle lines such as BMW but had yet to be made available as an aftermarket product.
Navdy devices were initially well-reviewed, with many praising the sleek design and ease of use. However, despite all this, the company failed to find its market and was forced to shut down in 2018, just five years after it was founded.
So, what went wrong?
Initially, Navdy devices were priced at $799, but soon slashed their price to $499 when they discovered that people were not willing to pay such a high price for the product.
Even at this lowered price, Navdy soon found itself in an oversaturated market, with fewer potential customers than expected.
The company had also made the mistake of entering a market that was already in decline, with sales of GPS devices falling sharply as smartphone mapping apps such as Google Maps and Waze became increasingly popular at a much more affordable price point.
On top of all this, some users were unsatisfied with the accompanying mobile app which occasionally ran slow – not ideal for a product that’s meant to be used while driving.
Navdy ultimately failed because it did not have a good understanding of its product market fit. They didn’t accurately assess the demand for their product, nor did they price it correctly to fit the market. As a result, they were unable to find sustainable growth and profitability and were forced to shut down.
How To Measure Product Market Fit
Now that we’ve established how important it is, let’s talk about how to measure product market fit.
Your ultimate aim is to find out as much as you can about your potential customers and which of their unmet wants and needs your product can fulfil.
To do this you’ll need to get a thorough understanding of the existing market. You’ll need to assess what similar products are available and how they are perceived by their customer base.
If you’re analysing a product that’s already on the market, you need to take advantage of all customer feedback available to you, be it from customer reviews, surveys, or interviews.
If you’re conducting due diligence research on a new product idea, you’ll need to speak to as many people in your target market as possible and get their honest feedback about the product concept.
You might also consider conducting a beta test with a small group of users to get detailed feedback about how they interact with your product.
Once you have all this data, you need to start looking for patterns. How do people feel about the product? How likely are they to use it and recommend it to others?
Let’s take a closer look at how to measure product market fit.
How to measure product market fit step 1: Competitive analysis
The best and easiest way to get a gauge of the current market is to assess the competition.
You need to understand what types of products are out there and how they are being received by customers. Look at customer reviews, ratings, and any other feedback you can find.
With the assistance of AI tools you can turn customer reviews and social media feedback into valuable data that can help you measure the product market fit of your competitors and as a result, aid you in making decisions about your own offering.
Aspect-based sentiment analysis
For example, Symanto can run aspect-based sentiment analysis so that you can see how people feel about specific product and service features on the market. Find out how people feel about your and your competitors’ pricing, customer service, speed, usability, design and more.
Net Promoter Score
Symanto can also provide Net Promoter Score (NPS) data from customer reviews. A Net Promoter Score indicates the likelihood that a customer will recommend a product or service to others.
Typically, an NPS is derived from customer survey data. Respondents are asked on a scale from 1 to 10 how likely they are to recommend a brand or product to their friends and family.
NPS is calculated by subtracting the percentage of respondents who scored 6 or less (detractors) from the percentage who scored 9 or 10 (promoters). The NPS is then given as a value between -100 to 100.
The trouble with customer surveys is that they require a lot of effort to administer, you might not always get a high response rate, and surveys are prone to bias.
However, if you use natural language processing (NLP) technology such as Symanto, you can automatically analyse customer reviews and social media data to generate an NPS score. This works by analysing the sentiment and emotions expressed in customer feedback and identifying reviewers who are likely to be promoters or detractors.
Compare your performance with that of your competitors to get an idea of where you stand in the market.
How to measure product market fit step 2: Target market analysis
To get a clear understanding of product market fit, you’ll need to take a close look at your target market. And answer these 2 questions:
1. Who are your potential customers?
There are several paradigms for target market analysis that you can follow. The important part is to make sure that you have a comprehensive understanding of who your potential customers are, what needs and wants they have, and how likely they are to use your product.
One way to break down your target market is by using market segmentation. This is the process of dividing a market into distinct groups of customers with similar needs, wants, or characteristics.
There are several ways to segment a market. The most common methods are:
- Demographics: age, gender, income, location etc.
- Psychographics: personality type, lifestyle, values, interests, etc.
- Behavioural: benefit sought, user status, usage rate, customer loyalty, etc.
Clearly identifying your different market segments will help you distinguish our offering from the competition and get a clearer idea of the niche or niches you serve.
Symanto uses advanced NLP technology to derive unique psychographic insights from even short excerpts of text such as a social media comment or review. Find out whether the author is introverted, extroverted, rationally minded or emotionally driven, and get a better understanding of their needs and wants.
2. How big is the market?
After you have identified your target market, the next step is to estimate its size. How many potential customers are there? And critically, how much revenue could you generate from each segment?
This can give you an idea of how realistic your business goals are and whether there is enough demand to justify your product or service. You can calculate this by looking at market trends and historical data.
For example, you can look at mentions of your product or service on social media, in the news, and on review sites. How many people are talking about your product? How positive or negative are they? How much of the market share do you have?
If you’re selling to businesses, you can use data from industry reports. If you’re selling to consumers, you can look at data from census reports or surveys.
How to measure product market fit step 3: Minimum viable product
Your minimum viable product (MVP) is the version of your product that has the bare minimum features needed to solve the problem you’ve identified.
The goal of an MVP is to get your product out to market as quickly as possible so that you can start collecting feedback from customers and begin the process of validation.
Beta testing is one way to get feedback from customers. This is when you release your MVP to a group of potential customers and ask them to use it and provide feedback.
You can use this feedback, to fine-tune your product and make sure that it’s ready for the market. It can also help you assess whether there is a need for your product and whether people are actually willing to pay for it.
How To Use Your Insights
Now you know how to measure product market fit, with the information you’ve gathered you will be able to identify whether:
- there is a need for your product
- your market is big enough
- there is too much competition
- your product is differentiated enough from the competition
- you’re targeting the right market segments
This information will be critical in helping you make decisions about your product, your pricing, your marketing, and your overall business strategy.
Don’t forget to keep measuring product market fit even after you’ve launched your product. Things can change quickly in the market and you need to make sure that you are constantly adapting to ensure that you still have a strong product.
Due diligence and a willingness to course correct will help you increase your chances of success in the long run.
Get Started With Symanto
If you’re looking for a technology partner to help you measure product market fit, get in touch with Symanto today. We offer a suite of AI-powered tools that can help you understand your customers, assess customer sentiment, and track market trends. Get in touch to request a demo to see how we can help you.