January 6, 2013 by huionn
Product-market fit has always been a fairly abstract concept making it difficult to know when you have actually achieved it or how you can achieve it.
In Eager Seller and Stony Buyers, author John T. Gourville describe degree of behavior change required vs degree of product change involved (value proposition) as metric to predict product success.
1. People evaluate the attractiveness of an alternative based not on its objective or actual value, but on its subjective or perceived value relative to a reference point (usually the products they already have). Due to the endowment effect, consumers overweight 3X the benefits of product they already have. Developers/Companies overweight 3X the new product’s benefits. (So, a new product need to be 10X better to be accepted by customers.)
2. In order to adopt a new product, some degree of behaviour change is usually required. Irrationally, consumers consider behaviour change as loss in “gain vs loss” consideration. By human nature, “losses loom larger than gains.”
y: value proposition (product gain / loss as perceived by customer)
z: number of customers (market size = volume underneath the area)
I think the product-market fit is achieved when low behaviour change is required and high value proposition is perceived by customers in target market segment.
Based on this model, Customer Development is a methodology to
i) reduce the behaviour change required: getting customer feedback on usability, minimum features for lower learning curve…
ii) increase the value proposition by understanding the customers’ problems, offering them the solution and eliminating/minimizing the perceived loss caused by adopting new product…
iii) discover the market segment and early adopters in the red-shaded area.
Due to bias of endowment effect, it is hard to penetrate existing market with incumbent players. On the other hand, it is normally hard to expect users to change their behaviour for a totally new product (slow adoption).
But why do I spend so much effort to understand this? I believe it is important for me to convey my marketing messages effectively and focus my development effort in specific key features.
I have observed that my competitors offer full suite of solution. On the surface, their offering can give better value of money. However, looking deeper into to consumer psychology, by adopting their solutions, the customers are forced to change behavior for non-existing problems (existing way of practice work good enough).