What is a product-market fit, and how to do it?

For start-ups, the product-market fit is essential to test the product offer in the market. This step of testing the product offer supersedes the problem-solution fit, and it provides sufficient evidence of the customer acceptance to the new offer and why. A product offer is proven successful in the market if only customers confirm acceptance by purchasing it. Any product offering comprises basic information on the product description, value propositions, price and distribution channels. Not only testing the product offer provides insights about the customers’ acceptance, but it also spots out the reasons for the failed product and ways to fix it. If the product offer does not create any sufficient demand, this means that there is something wrong with either the product or price or distribution channels, or all of these. Establishing the product-market fit requires preparing the product description, product prototype, selling price, list of questions, list of interviewing customers and the criteria of acceptance or rejection of any assumption.

First, describe your product

Describing your product enables offer testing, and it includes information about the specifications, features, benefits and functions. Then, you develop a mock or trial product or any other visual mode for testing with customers. This mock product depends on the product, and it is ranging from a physical object in the manufacturing’s case product to a simple digital app. You can also describe your product by using a sketch or brochure or land-page on a website. Developing the right mock product or sketch or even a brochure will ease the communicating and testing process of your product concept with customers in the marketplace. The best product prototype is the one that enables customer testing and increases customer experience in understanding the new product. Most importantly, arrange your product’s information and facilitate the customer testing of it.

Second, test your product

This is gathering information from customers about your new product. Testing requires product information, a list of questions, criteria of acceptance or rejection along with interviewing sufficient customers. Describe your product in a sketch or a brochure or land-page on a website and make it available to customers before interviewing them to get their feedback on your product. Based on the findings, the product offering will be accepted or rejected or refined to better suit the customers’ needs.

Third, decide on the launching market

Defining your launching market includes information on the location, target customers, market size, growth, competitors and existing market mixes. You decide on the launching market or submarket and choose the list of customers and other stakeholders to interview. The attractive market is attributed to potential growth, low risk of product substitution and new entrants, low negotiating power of the buyers and suppliers, and it is not fiercely competitive.

Fourth, estimate the cost of products

It may be early to estimate the cost of your products, e.g. £/ per product, because of the limited information, but it is necessary to roughly estimate the cost of the products and decide on your selling prices. The cost of any product comprises direct costs, e.g. the cost of raw materials and direct labour, and indirect cost, e.g. depreciation and administration costs. If you find it difficult to estimate your product costs, you can make some reasonable assumptions and apply the prices of similar products. This estimated cost along with other considerations, e.g. competition, profitability desired and business targets will make up the basis for your pricing offer.

Fifth, develop a commercial offer

It includes information about the product description, value propositions, selling price and distribution channels. At this stage, this information may be subjective, and thus you should make reasonable assumptions and try to develop the offer that best suits your business and the market.

Sixth, test your product offer in the marketplace

This step is significant to test the desirability and viability of your offer in the marketplace, and it comprises your product offer as per the above steps, interviewing customers and collecting testing results. After then, you analyse data collected based on the set criteria and make a final decision on the product offer. The outcomes of such testing will form the basis of your acceptance to the product offer or changing it.

Final note

This article is extracted from my new book- Mastering Enterprise Skills for Potential Entrepreneurs, which can be found on www.amazon.co.uk. If you want to receive more information about the book and our activities, you can register in our newsletter by using this link.