Building Customer-Focused Products: Why Do Market Research?

This first article in our series Building Customer-Focused Products: An Insiders Guide to Market Research offers an overview of what market research is and

Building Customer-Focused Products: An Insider’s Guide to Market Research

Building Customer-Focused Products: An Insider’s Guide to Market Research, is a series compiled by product owners with decades of experience in creating and launching successful subscription products.  The series is full of specific tips, checklists, examples and tools as well as best practices and foundational knowledge that will help you select the suppliers that are the right fit for your business.

This series is written with the beginner in mind.  The content is explanatory and foundational, designed to give someone new to product leadership the practical tools necessary to build a product in a timely and efficient manner.

Building Customer-Focused Products: Why Do Market Research?

What you think you know about your customers, opportunities and markets is actually about 80% correct. The 20% “market knowledge gap” is typically based on history, beliefs, and experience. The biggest mistake we observe is not validating assumptions. There are things we simple don’t know and trends we can’t keep up with. We may be so busy serving our customers that we haven’t been watching the market. Even the most experienced among us need to validate assumptions, trends, and past research to inform current decision making. So why do market research?

  • Convince Outsiders.  Your boss trusts you. Your teams trust you.  Your investors, the board of directors and others trust you. But, they’re still going to want facts to prove out your assumptions and support your recommendations.
  • Justify Expenditures. Whether it’s for Kickstarter, your bank or an IPO – investors will require a business plan that includes details about the customers, the market, and potential revenue.
  • Create a Common Understanding. Not everybody on your team has the same experience and world view. Market research creates a common set of facts and priorities from which everyone can work.
  • Prioritize Options. Leverage market research to help your subscription business prioritize important projects and decisions.  Ranking opportunities based on data such as market size and other facts provide clear comparisons versus the opinions of you or your team is critical to making food, informed decisions.
  • Reduce Emotional Decision-Making. Reduce the “but all our customers want that product feature” dialogue by using proof points to avoid wasting time on opinion-focused debates.
  • Create Effective Marketing. Every customer is different, but with research, you know how to optimize your marketing dollars.
  • Improve Forecasting. Knowing key metrics like average time-to-sale, order value and lifetime customer value are critical to forecasting.
  • Communicate the Risks. Establish your credibility with your team, your board, your investors by understanding and communicating the fact-based risks involved in your plan. All key stake holders will then understand and be involved in making the right go-forward, or don’t go-forward, decision, based on those risks.

Components of Good Market Research: The Four “Cs”

Sometimes we spend a lot of time and money on research, only to find out it doesn’t tell us anything we can use. How can we avoid performing research – and a creating new product – that’s broken from the start? A good foundation is the four “Cs”:

  • Context. Understand what benchmarks are appropriate for your specific market.  For example, it MAY be that your conversion or renewal rates are different than broad industry averages but for your specific vertical and focus they are perfectly fine. Another example is a survey tool called NPR, which stands for Net Promoter ScoreÒ, and is a method for surveying customers to understand their satisfaction with your business.  A perfectly good score for one type of business could mean an issue for another.
  • Comparison Over Time. Measuring key performance indicators over time is the best way to understand whether your subscription business is meeting the market’s needs.
  • Clarity. Clear market-research goals will help us create clear questions. For example, do you really need to know how good your customer service is or would “what percentage of the time does our customer service team satisfactorily answer our customer’s questions?” be more insightful.
  • Credibility. When using online data sources, use the most credible source you can find with the time and budget you have. The U.S. Census Bureau and Small Business Administration are obvious examples, but there are also specialized and authoritative services available. The most credible sources are those that offer recently updated data, those that offer results of original research and those that cite the population surveyed and give a margin of error.

Bringing Strategic Leadership to Market Research

Understanding WHY we do research, and WHAT it takes to do solid research, are two of the three preparations for good market research. The third? Fitting market research into your own company goals, budgets, and timelines.

Many companies, both small and large, perform formal strategic-planning sessions every year and adjust action plans by quarter based on ongoing results and market pressures.  These strategic plans are generally focused on budgeting and understanding how the strategic objectives for the new year will be supported by product, technology, marketing, and sales. Often, all this strategic and planning work goes by the wayside once the planning is done. Often times, the plans are too optimistic (too many “Tier 1′ priorities. More often than not, the research that supported the strategic plan was executed in a way that was not truly objective or didn’t support the strategic vision. This results in poor performance in some way or another. Don’t let this happen to you.

  • Keep it Legitimate.  Don’t engage in or encourage biased research.  Do we really want to knowingly deceive our company into building a subscription nobody wants?
  • Align Effort with Options.  Don’t do full-on market research into opportunities you can’t fund or concepts you won’t build.  Establish a few easy criteria an opportunity should meet to qualify for a deeper look.
  • Align Effort with Strategic Goals.  It’s your job to tie all work back to the strategic mission and vision of your company, and most of us do that in our heads. It’s very important to spell out how the results of the research will help drive direction.
  • Align Effort with Expectations.  You can do a market sizing or competitive analysis in a half a day, or half a year. You can use blunt, basic tools or highly sophisticated systems.  Which one is right?  The one that gets you just to the result you need, and not a minute more.  If you’re going to need the name of a high-profile market research firm stamped on the PowerPoint in order to give your results credibility – to make them actionable – then either spend the money or walk away.  On the other hand, if you’re looking for a small business loan, Kickstarter or an alternative micro-lending alternative, you can probably get away with a couple days tooling around the web and Survey Monkey.

Creating an Unbiased Research Plan

Whatever your method of collecting and analyzing data, it’s important that you:

  • Clarify what it is you’re trying to find out.  Be as specific as possible.  Know the answer to “what will knowing this answer let us do?” before you begin.
  • Understand the quality of the data you’re using. No data is perfect. If the data is weak, make a note of it and treat the results accordingly.
  • Embrace the fact that data is directional. Market research helps you find broad opportunities, averages, and trends; it will not be an accurate representation of any one subscriber.
  • Learn enough to justify a decision, without wasting time overanalyzing.
  • Accept what the data tells you. The goal is not to manipulate figures into presenting a different picture, but to have the right facts to make the best decision.  You may decide to go ahead with a product in spite of data that paints a risky picture, but you’ll look much more credible if we identify and communicate those risks upfront.

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