What is product-market fit? Examples and strategies to find it
Product-market fit is achieved when you find the proper market for your service or product and fulfill the needs of your target audience.
Last updated August 22, 2023
Your business’s success depends on your ability to create a product or service that satisfies its target market, also known as product-market fit. Achieving this fit means finding the right balance between what your customers want and what you can offer.
In today’s highly competitive market, having a great product may not be enough. Businesses also need to deliver a great experience if they want to impress customers. According to the Zendesk Customer Experience Trends Report, 73 percent of customers will leave for a competitor after multiple bad experiences.
Businesses that focus on delivering exceptional customer experiences and service are more likely to drive significant growth than those who don’t—a great product and great CX are the two key ingredients that make customers come back.
Explore the importance of customer experience in achieving product-market fit and learn how to create a customer-centric approach to product development.
- Product-market fit definition
- Why is product-market fit important?
- How to find product-market fit
- How to measure product-market fit
- Product-market fit examples
- Reaching product-market fit and what comes next
- Zendesk Customer Experience Trends Report
Product-market fit definition
Product-market fit describes the positioning of a product or service within its target market to meet its audiences’ needs. A strong product-market fit means the company distinguishes itself from its competitors by satisfying key market demands.
Why is product-market fit important?
Product-market fit is the foundation of any successful business. Without it, your business will struggle to stand out in the market since there’s nothing to differentiate you from your competitors.
Evaluating product-market fit helps a business grow—and sustain that growth—by ensuring its products or services align with its customers’ expectations. When alignment occurs, your organization will receive far-reaching benefits, like:
- Customer loyalty: Customers are less likely to leave when your business delivers a great customer experience.
- High Net Promoter Score®: Customers are more likely to recommend your company to their peers when they’re given a great product accompanied by great service.
- Reduced operating risk: Your business can bring new products and services to market with a higher degree of certainty that potential customers will buy them.
- Competitive advantage: Once you’ve identified what your business offers that others don’t, you can deliver a clear incentive to your customers regarding why you’re the better option.
“Product-market fit is essential for companies to understand their customers, their value proposition and the reason why customers buy from them,” says Jeremy Ambrose, Director of entrepreneurial spark at Zendesk. “This is intrinsically linked to the ability to de-risk company moves in marketing, sales strategy, hiring, and company culture.”
How to find product-market fit
Finding product-market fit includes researching buyer personas and customer experiences, defining your value proposition, and building and testing your product. Naturally, your product-market fit strategy needs to account for many variables, like the industry and how established your business is.
There are two product-market fit stages: before you find it and after you achieve it. Reference these steps to reach the latter stage quickly.
1. Evaluate your buyer persona
Buyer personas help companies understand and connect with their target audience by identifying key information, which can be achieved through market research like customer surveys, researching market trends, analyzing website traffic or social media engagement, and talking to your actual customers.
Gather quantitative and qualitative data to have a more complete understanding of your customer base. Use this data to create a detailed profile of the ideal customer, including demographics, interests, and behaviors.
Look for patterns and trends you can use to create a detailed picture of your ideal customer. Use this information to tailor your marketing strategies to appeal to their preferences. Develop new products and services that closely align with customer needs or retool existing services.
2. Research the customer experience
Researching the customer experience is essential to understanding how customers perceive your products and services. You can repurpose some of the data you gathered for your buyer persona while adding more personalized information from focus groups and interviews.
Identify customer touchpoints causing issues and areas where they are satisfied. Ask open-ended questions and listen carefully to customer feedback to gain a deeper knowledge regarding increasing customer engagement. Survey your competitors’ customers to find out what they like or dislike about that company and what would make them leave. Ask questions like:
- How often do you use the [Product or Service Name]?
- How easily did you learn to use [Product or Service Name]?
- Is there anything about [Product or Service Name] that you don’t like? If yes, what is it and why?
3. Define your value proposition
Your value proposition is a summary of the benefits you offer to potential customers. It addresses customer needs and how you aim to satisfy those needs. Essentially, a value proposition describes your ideal product-market fit strategy.
For your value proposition to fulfill its purpose and set your go-to-market strategy up for success, you must identify what makes your company unique. If you can’t determine why a customer will choose your product or service over a competitor’s, buyers can’t either. Highlight any competitive advantages you can deliver or how you’ll meet underserved needs, like:
- Superior performance
- Improved user experience
Communicate these benefits to your sales, marketing, and support staff so they can effectively communicate the value proposition to your customers.
4. Build and test your minimum viable product (MVP)
A minimum viable product is the most basic feature set you can offer while still attracting new customers. It serves as an entry point for customers to experience your offerings while giving you a product-market fit framework.
Identifying your MVP is the result of trial and error. “Come up with your lead assumption and test your hypothesis surrounding this on its own,” says Ambrose. Ask yourself if the MVP is addressing a problem worth solving. If it is, who is going to care about it?
Stripping your product down to the essentials is a good place to start since it helps define your product’s value to customers. The MVP lets you know what’s non-negotiable for a positive experience and what can be considered optional in your business model.
“Don’t fill a leaking bucket. If you’re building a product that doesn’t fulfill a customer’s needs, you’ll lose customers you’ve worked hard to acquire.” Tommy Klouwers, Senior Growth Marketing Manager, Startups at Zendesk
5. Analyze MVP and correct if necessary
To accurately understand how well your MVP fulfills its purpose, you need to test it and measure the customer experience. Ask for feedback from customers to learn if it effectively meets their needs, like:
- Does [Product or Service Name] feel like it’s worth the cost?
- Does [Product or Service Name] help you achieve your goals?
- What’s your greatest concern in using [Product or Service Name]?
Customers’ responses might not be positive, but getting this kind of feedback can still be a constructive experience. If the MVP comes up short, evaluate where it went wrong and make adjustments. Your MVP is the foundation for your product-market fit, so it’s crucial to get it right.
How to measure product-market fit
Finding a product-market fit isn’t a universal path because achieving it is unique for each company. However, there are recognizable identifiers that will help you measure your progress and improve the customer experience for your audience.
Determine the right metrics
There are several customer experience key performance indicators (KPIs) that will shed light on how well your product fits into the market, including customer retention rate, growth rate, marketing success, and churn rate.
- Customer retention rate displays the increase in the number of customers who make recurring purchases.
- Growth rate reveals improving revenue, the number of customers, or the size of purchases.
- Marketing success reports on increasing the return on investment (ROI) of marketing campaigns.
- Churn rate shows the percentage of customers that stop making purchases over an established period.
Track as many of these metrics as your customer experience analytics software can since focusing on just one won’t provide a full picture of all the variables at work. Measuring multiple product-market fit metrics from the start can lead to a deeper understanding of how things are connected.
Survey customers with product-market fit questions
Avoid getting lost in data by keeping the customer front and center. Get them involved and ask about their experience with your company. And if you’re a startup and your product isn’t live yet, offer demos to potential customers.
Avenues for sourcing feedback include:
- Polls on social media
- Follow-up emails after a purchase
- Automated surveys following customer service chats
In order to receive unbiased, usable feedback in surveys, be sure to ask open-ended questions that don’t lead customers to a particular response. Here are some related product-market questions that help measure customer satisfaction:
- How would you rate your overall satisfaction with [Product or Service Name]?
- How often do you use [Product or Service Name]?
- What are the primary use cases for [Product or Service Name]?
- How easy is it to use [Product or Service Name]?
- How does [Product or Service Name] compare to alternatives in the market?
- Would you recommend [Company Name] to others?
- How likely are you to continue using [Product or Service Name]?
- How has [Product or Service Name] improved or impacted your life/business?
- What features or improvements would you like to see in future versions of [Product or Service Name]?
“If you don’t talk to your actual customers enough,” Klouwers says, “you’ll end up playing a guessing game.” Surveys provide validation that your product is in a good market and possesses the required functionality. Even community forums can serve as an informal place to surface customer insights.
Track metrics over time
Revisit your product-market fit analysis over time to ensure you remain aligned with your customers. In a business’s early stages, measure it quarterly. You can reduce the frequency to once or twice a year after you’ve found a stable position in the market.
Collecting the right metrics is important—but so is correctly interpreting the data. Klouwers recommends the Sean Ellis Test for determining market fit:
- Ask your users how they would feel if they could no longer use your product.
- Provide an answer scale: very disappointed, somewhat disappointed, not disappointed.
- If 40% or more answer “very disappointed,” it means you’ve created something that people want to use.
This simple test can be added to any business’s playbook, regardless of industry. Compare your results to your baseline metrics and make any necessary changes to your service or customer experience strategy. Study qualitative results, like an increase in word-of-mouth referrals and engagement, to see if your survey responses translate to real-world progress.
Product-market fit examples
Discussing theoretical product-market fit can only get you so far. For inspiration on how to achieve product-market fit yourself, look at a few companies that found it for themselves.
63 moons: Serving the underserved
Finance company 63 moons identified India’s stockbrokers as an underserved market. The world’s second-most populated country encountered barriers to entering the global market, so 63 moons broke into the market by providing local traders with the digital solutions they needed to be successful. But the company didn’t stop there.
The financial industry is complicated, and there’s a lot at stake. 63 moons mapped out the customer journey so it could guide people through inherent pain points. Plus, the company regularly improves its tools so customers are always on the cutting edge while also ensuring compliance with industry regulations.
- Market: Finance
- Product: Order and risk management systems
- The fit: 80% market share in India
Teamworks: Simplifying communication
When Zach Maurides played football at Duke University, he experienced the divide between performance and communication firsthand. Players and staff struggled to share information and accommodate demanding student-athlete schedules. Maurides created a web-based calendar to centralize the information to prevent conflicts and save time.
The product was a success with the university’s football and lacrosse teams, helping Maurides transform his student project into a legitimate business upon graduating. Teamworks now serves college and professional sports teams around the world,and is used to assist with recruiting, nutrition tracking, and more.
- Market: Sports teams
- Product: Communication software
- The fit: 100% CSAT
Rentman: Satisfying unmet needs
Roy van den Broek ran an audiovisual rental company and needed an efficient way to manage its many moving parts. He found that the existing solutions were expensive and complicated to use. So, he decided to develop his own.
Rentman broke into the market by providing an affordable management program that any company could use. Event companies get an overview of individual productions, booking crews, and scheduling logistics from a unified platform. Rentman maintains its customer obsession by improving the software based on customer feedback.
- Market: Event production
- Product: Management software
- The fit: 93-96% CSAT range
Reaching product-market fit and what comes next
Complacency can quickly kill momentum. If you operate in a dynamic market, your business can’t afford to shelve your product-market fit initiatives as soon as it’s been achieved. Success requires constant attention and innovation.
A great product and great customer experience management is what keeps customers coming back. If either one is lacking, your customers may be on their way out the door.
If you do both well, you’ll see positive changes in metrics like retention, churn, and NPS. These are the fundamentals that investors care about, so it’s easier to raise funding when your performance is strong.
For help delivering a customer experience that’s as good as your product, consider applying to the Zendesk for Startups Program. You’ll have six months of unlimited access to Zendesk products to build your CX foundation.