Everything you need to know about product-market fit

What is product-market fit?

Go-to-market strategies describe the conditions under which customers are expected to buy, use and tell others about a product enough to sustain the growth and profitability of that product. It is said that a company’s biggest problem is thinking that its product fits the market, but it does not. Therefore, before launching a product, you need to make sure enough people are willing to pay before focusing on other important objectives, such as growth or selling products to existing users.

We usually associate the concept with marketing and product management. In reality, achieving this is a responsibility shared by the entire company. Sales, business development, support, finance, and all other departments help the company achieve this.

Viewing product-market fit in light of this model is the measure of how well the product (the top three layers of the pyramid) satisfies the market (the bottom two layers of the pyramid).

Target customers determine at what level the product satisfies their needs. Again, the customer will judge the product relative to other products in the market. To achieve a product-market fit, the product must satisfy unmet needs better than the competition.

Market

When considering the hierarchy of the pyramid, we will start from the bottom, that is, from the market. A market consists of existing customers and potential customers who share a particular need or related needs.

The size of the market can be defined by the number of customers in the market or by the total revenue received from customers. For either of these two indicators, the current or potential size of the market in the future can be discussed.

The Food Market Pyramid divides the market into two different segments: Focus on customers and their needs. The needs level is above the layer targeting consumers, for example, because that is what you are looking for in terms of finding the right market for the product.

When you create a new product or improve an existing one, you want to satisfy unmet customer needs. That’s why Dan Olsen uses the term “forgotten needs” as the name of this layer. Consumers will evaluate a product by comparing it with alternatives. Therefore, the relative extent to which the product satisfies their needs depends on the competitive environment.

The Product-Market Fit Pyramid

If you are trying to achieve product-market fit, a definition alone is not enough guidance. That’s why Dan Olsen, in his book The Lean Product Playbook, designed a model called the product-market pyramid.

This hierarchical model breaks down the product market into five key components, each a layer of the pyramid. Your product is in the top section, consisting of three layers. The market is the bottom section, consisting of two layers. Within the product and market sections, each layer depends on the layer immediately below it.

Is our product market in shape?

Market demand

The market needs a product (demand) and you must be able to satisfy that market (success). In addition to being able to satisfy the needs, you must also stand out with something special. This is often done using the 40% rule, which is one of the most important factors in determining whether our proposal is suitable for the market. This includes getting feedback from existing customers about how they will feel when they no longer own the product. If even 40 people say they will be “very disappointed,” then our product may be good for the market.

Redeem

If our product is a good fit for the market, customers will demonstrate that they understand its value by buying again. And if our repeat purchase share increases each month, then our product may be a good fit for the market. However, if our product price analysis chart goes up or down every month, we need to think about our product strategy and position.