As we all know, a lot of products fail. Some say that the product failure rate is between 35% and 50%*, while others that it can be as high as 95%**.
The fact is that there isn’t one good method to measure overall product failure (or a consistent definition of product failure to begin with), so we’ll never know. But the fact is that we know that it’s high. Too high.
And the saddest thing is… most fails could have been avoided if proper market research had been conducted. According to a study of failed startups, 42% of them didn’t even address a market need***.
So how do we reduce the chances of product failure? Well, that’s what we’ll see today.
It's important that when we develop something, we try to make sure that we're not just adding more junk to the pile of product failures. And, to a large extent, product failure can actually be prevented, if we put a bit more effort in the development phase.
Because while it’s true that some failures are related to budget, team, timing, or even sheer bad luck , a lot of product failures come from people not listening to what potential customers value.
And those are sad failures that could be avoided if only market research had been properly conducted prior to development. Not just conducted. Properly conducted. Huge difference.
Today we’re going to go over what you need to get form market research to properly inform product development and marketing strategy development, so that you decrease dramatically the chances of developing a product fail.
But before we start defining our market research objectives, a very quick note: never confuse data with information. What we want to get form market research is information. Information that we can use to guide our actions; to make decisions; to build strategies. Data that we cannot act on is useless.
Keep in mind that the goal here is to develop a product that people want to buy at a price that is profitable for you.
To increase chances of success, products need:
This is what I like to call the revenue maximization triangle, or value triangle.
Our market research goal is to gather information that helps us creating those three strategies, and creating them well. Not just one of them, but all three! They’re only good if together they allow us to create products that people want to buy at profitable prices.
Mess up any of the three, and we may end up with products that nobody wants to buy, or at least not at a profitable price.
Let’s then go into what we need to get from market research to develop each of these three strategies.
Market research objective no.1: information to support our value creation strategy development
If we want to develop a product that our target customers want to buy, one of the things we need to find out, is what criteria our target customers take into account when deciding to buy a product like ours.
We need to understand what would drive someone to buy something similar to our product, and what would deter that purchase. Are people looking for specific features? Or a service level? Or a price level maybe?
We need to find out what a hypothetical product would need to have to get people interested in it, and what it shouldn’t have, because having it would decrease purchase likelihood. This one is often forgotten, but equally important.
This information could potentially help us modify our product to match what people are seeking.
Then, we would need to find out what people think about the product we intend to create.
We need to figure out what people value the most and least about our envisioned offer, what they consider to be positive and negative aspects, and especially, what are the “yes!” and “no way” features.
But apart from those, we also need to identify if there are any features that could be considered "filler", low value ones. Because believe it or not, offering too much can ruin your product. I have a post on the importance and purpose of identifying these features in case you want to know more.
So, in terms of value creation, at the end of this market research, we should have information that allows us to identify mainly:
- What features should be built, and if applicable, what features should be built first, and which ones can wait for future versions. This is intertwined with the value capturing strategy though, so we’ll come back to it in a second.
- If there are any market segments product-wise. That is, potential customer groups that are looking for such different feature combinations that they would be better served if we developed several different products instead of a “one size fits all” offering.
There are very simple standard questions that we can use to test this, and I’ll share the most important ones in an upcoming post. It can be much simpler to implement than it might sound at first.
Market research objective no.2: information to support our value communication strategy development
We want to understand what are the key value claims that we should be using in our marketing materials.
Because there’s no point in developing sophisticated marketing funnels or even paying for ads if what we’re saying isn’t what will drive people to become interested in our product.
It’s great to have a strategy in terms of how we will deliver our marketing messages to our potential customers, but we also must have a strategy in terms of what we will be saying to them.
And that’s what we must use market research to figure out here. We need to find out:
- What value claims resonate the most with our target customers.
- Whether those claims are credible.
- If the value claims aren't credible, what we can do to Improve credibility. When possible, of course; sometimes it just isn’t. You’re not going to convince me that a lightbulb will last 10 years. No matter how good it is, I may drop it. And who will I complain to if it only lasts 9 years? Some value claims just won’t fly, and we need to identify any potential issue as early as possible.
We should also try to figure out if we can take advantage of any framing effects, or whether we need to address any potential customer inferences.
And if you don’t know what I’m talking about, framing and inference are two psychological effects that can be quite powerful when it comes to marketing, and that I’ll go over in another post in this market research series.
Anyway, at the end of this market research, we should have information that allows us to identify mainly:
- What value claims and messages we should be using in prominent places in our marketing materials.
- If there are any different market segments communication-wise. That is, groups of potential customers that we might need to communicate with differently, because they’re seeking different things.
Note that these communication-based segments may or may not coincide with the product-based segments. You may for example need to communicate with several groups of customers in a different way, but not necessarily need to create a different product for each group; they may just be interested in different benefits of a same product, or be accessible through different communication channels.
Market research objective no.3: information to support our value capturing strategy development
Assuming that your goal is to maximize profits obtained from your product, at the end of our market research, we should have information that allows us to identify:
1: Achievable price ranges.
For example, at what price can you get an easy sale? And up to what price can you go if you want to put some effort into value-selling?
Note that simply asking: “how much would you pay for this product?” is a bad idea. It’s not enough to build a strategy, and the data obtained will be… quite frankly, very poor quality. If you want a basic idea of how to gauge for achievable prices, check out the post about the 5 questions you must ask to price a product.
And if it's relevant to your situation, you should also collect information regarding...
2: Whether people would be willing to accept a non-typical pricing model (if you want to go there).
I’m afraid I don’t have a post on pricing models yet, but my post about pricing strategies touches it briefly and it might help.
But going back to our value creation strategy and its entanglement with the value capturing strategy, our market research exercise for product development should also provide information regarding:
3: What features should be built, considering not just what people say they want, but also what they’re willing to pay for.
Because the features we build should serve at least one of two purposes:
- Allow to make a sale, or,
- Increase people’s willingness to pay for the product.
If a feature doesn’t do either, we may want to consider skipping it. Why would we build something that doesn’t help making a sale nor increase achievable prices? That’s a waste of resources. Common practice, but still not exactly smart.
And this is why it’s important to test the value creation, value communication, and value capturing strategies combined: one influences the others; they’re completely intertwined and cannot be built separately.
There are a few more things that we should get from market research prior to product development if we want to maximize our chances of product success, but these really are the main ones in my opinion.
I’ll be publishing more in-depth posts soon, where I’ll go over implementation, dig deeper into these subjects, and cover some others that I’m not including here.
So, in my next post in this series I’ll go over what we should do before we start talking to potential customers about our product. Because successful market research starts with solid preparation.
And, preparation is actually the hardest part, the most important step, and the one that people usually get wrong.
So… I hope this post was helpful, and to see you in my next! Bye!