Market analysis: a maturity matrix
From zero awareness to industry trend analysis
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Over the past several posts, I've been writing about various aspects of what I call the three strategic building blocks:
What the business needs;
What the customer needs; and
What the market needs.
In particular, I've written about business and market needs as filters that help us sort through customer opportunities at the top and bottom of the funnel, respectively. Business needs filter which customer needs we pursue, while market needs decide how we can pursue those customer needs.
The more I've written about these building blocks, however, the more I've been thinking about how skill-dependent that market needs filter is. Market analysis is a skill that takes time for most product managers to develop; it’s treated as less critical early on and less encouraged. That may be because, in many organizations, market analysis is the skill that's most likely to be outsourced to, or owned by, different functions like product marketing. Not to mention, I've seen many product resources on understanding business needs and even more on customer research, but fewer on understanding the market.
But, it's a critical skill you need to put together a holistic product strategy and efficiently prioritize customer opportunities. So, that's led me to think about what a market analysis "skill development path" might look like for product managers.
Honing the market analysis skill
Reflecting on my own experience as a product manager as well as a product management coach and consultant, I've seen roughly five tiers of maturity when it comes to conducting a market analysis from a product perspective:
No market awareness / focused only on competitor weaknesses
Focused on competitor strengths and weaknesses
Understanding of company strengths/weaknesses related to competitor strengths/weaknesses
Analysis of competitor trends and how they may impact the company
Analysis of broader industry trends and how they may affect the competitive landscape
These aren't perfect buckets – in fact, they’re a little simplistic, as “market analysis” typically involves looking at more than competitors – but they're accurate enough for now and represent the most critical skills I think product managers need. They're essential to delineate because they impact the quality of the market needs filter I mentioned above. Which means they affect, in turn, the quality of one's product strategy.
Level 1: No market awareness / focused only on competitor weaknesses
I had a product manager tell me once, "I work in an emerging industry, so we have no competitors." I promise you: this is never true – for any business. You may have no direct competitors (still less common than people think), but your customers always have alternatives – and if they have options, those options are part of your market.
I mention this outright because one of the worst things you can do as a product manager is to convince yourself that there's no market to analyze and rob your strategy of that market needs filter. If you don't cultivate a sense of how your product – even as a newer product – stacks up against existing options, you spend a lot more time learning what will work in the market and what won't. (Not to mention, often the hard way: after you've invested development time in the product.)
A slightly better but related anti-pattern involves product managers or organizations who only consider their competitors' faults. Competitive spirit is a healthy part of any organization, and it's normal to trash talk competing products now and then. However, excessive focus only on competitor weaknesses is toxic in the long run. It breeds a false sense of confidence and erodes the necessary self-awareness for thinking strategically.
Level 2: Focused on competitor strengths and weaknesses
Level 2 – in which product managers are aware of competitor strengths and weaknesses – starts to see competitors more holistically. However, it opens up the risk of another strategic anti-pattern: using competitors' strengths as a replacement for a roadmap. One might call that "the feature parity trap," and I'm betting it's pretty familiar to at least some of you. It looks like this: the broad goal in an organization is "feature parity," and the roadmap becomes "anything our competitors are good at that we don't have."
Aiming for feature parity isn't bad, as long as – and that's a big "as long as" – there's some solid business thought behind it. However, what tends to happen is that, rather than letting business needs serve as a top-of-funnel filter, market needs take priority: closing feature gaps becomes the end rather than the means, even if it doesn't help the business. It should be pretty obvious why that's a bad strategy.
Level 3: Understanding of company strengths/weaknesses related to competitor strengths/weaknesses
In truth, what I'm calling Level 3 is the bare minimum I think product managers need in terms of market analysis skills today. It involves understanding the strengths and weaknesses of one's own company and how they stack up against competitor strengths and weaknesses.
What's fundamental here is that as a product manager, one starts to look at the competitive dynamic between companies rather than simply at one company in isolation – and that's a theme we'll see growing in importance over the remaining levels.
As with Level 2, understanding fundamental competitive dynamics doesn't replace a clear business need as a top-of-funnel filter. However, it does provide more protection against the "feature parity trap." When one understands what one's company does well or poorly – and can be honest about that – it's easier not to react impulsively to a competitor's flashy new release.
Level 4: Analysis of competitor trends and how they may impact the company
It's one thing to analyze a competitor's standing versus one's own company – it's another to look at how competitors have trended over time. Once one has a good sense of how one's company stacks up against competitors, there's room to start looking at – and predicting – a competitor's movements. Perhaps their recent releases have all focused on a particular technology, segment, or theme (e.g., workflow automation). Whatever the specifics, it's best to map out a competitor's movements and look for trends.
Level 4 is, somewhat obviously, something that requires time to do well. Of course, one can look at a competitor's historical release notes to understand how they've changed or grown their product in the past few years, but it's best to regularly check in on competitors and keep one's hypothesized trends up-to-date.
Doing this is critical for developing a product strategy because to chart the course for one's product, one needs to understand the competitive obstacles that are likely to arise. That way, one can both pursue opportunities that avoid those likely obstacles or do so willingly and with a more competitive plan.
Level 5: Analysis of broader industry trends and how they may affect the competitive landscape
Level 5 is, essentially, Level 4 taken to its logical extreme – looking at competitor trends and broader market trends. At this level, a product manager actively thinks about emerging technologies and asks how they might surface in the industry based on competitor trends and resources. It should make sense how this highest level of the market needs "filter" can improve and transform a product strategy: it encourages new solutions to existing customer problems in ways that make sense for the business.
As with Level 4, doing this well yourself requires sustained investment over time – it doesn’t come from reading one analyst report. The good news is that you can find others to help you as you develop your own skills. There are almost certainly people in your organization who have highly developed market analysis skills and think in terms of broader industry trends. However, they may not be product managers – executives typically have an excellent background in, and knowledge of, the market; as well as experienced members on the Sales and Marketing teams.
Ultimately, honing your market analysis skills is critical for better prioritizing customer opportunities – and better for your strategy. At the bare minimum, a finely-tuned market needs filter means not wasting time pursuing opportunities that will compete badly against the competition; at the other extreme, it means finding breakthrough solutions to common problems in the industry and generating a market-leading strategy.