How to research Product Demand?
Over the last few years, the tech industry has exploded. Despite its initial pitch as good for SMBs and startups, tech solutions are becoming feasible and cost-effective for companies of all sizes.
But if you learn how to analyse product demand well, these highs and lows won't surprise you as much. This guide will teach you the basics of product demand analysis for the marketplace of the future.
Product demand is what Product Managers of any business eventually want, and it helps them develop reliable products.
New methods of product demand forecasting are needed to determine a company's performance. You don't want to start selling something to realise there's no market for it.
For the product demand plan, it's important to know how much demand there is for SaaS products. Product Managers should ask themselves these questions to understand the product demand market:
- How popular is a product?
- Product demand estimate cost?
- Product demand measures?
Finding answers to all these problems will give Product Managers a clearer picture and a better idea of how to do the best and most reliable product research and analysis so that the products they put on the market don't fail.
To do this, Product Managers must accurately estimate, calculate, and analyse product demand.
What is a Product Demand Analysis?
Product Managers can estimate their products' sales in the future by conducting product demand research. It is a method for analysing how certain product sales are affected by factors such as seasons, competition, and other pertinent events.
Product demand analysis can be performed at various times, including for things not yet available for purchase. It depends not only on past or prior sales but on numerous other factors like technological improvements, user personas, environmental changes, and market demand. Product demand is forecasted based on all these factors.
Therefore, it is true that there are many elements at play, and nobody can accurately forecast the future down to the very last bit that will be sold. But figuring out how much demand there is for a product is key to building a successful business. Here, you'll find out why, but before we proceed further take a look at the insights of the SaaS product market.
According to the results of recent research:
- There has been a 50% annual growth in the SaaS market by the end of 2021.
- Most small firms have already taken advantage of SaaS possibilities.
- One-twentieth of healthcare organisations now use SaaS products.
Why Conduct a Product Demand Analysis?
Product demand analysis gives information that helps Product Managers to make decisions. Product Managers need demand research for sales forecasting, pricing, marketing and advertising expenditures, financial decision-making, and production.
Exceptional products start with great ideas; if Product Managers lack market knowledge, their best ideas might likely be unsuccessful. So, being a product manager, keep your focus on idea validation. This will help you determine the product demand before ideation.
Early product research and idea validation reduce project risk and help ensure your product fits the market within the technologically and economically feasible budget.
A company's financial decisions will be influenced by product demand. Imagine a product with skyrocketing demand. In this case, additional resources are needed for product manufacture, quality upgrades, advertising to attract customers, and marketing staff training.
Customer demand is another determinant of pricing. Product Managers can determine whether to raise or lower their product's pricing when they understand client demand.
Product demand analysis should be a core part of Product Managers' business operations if they want to succeed and understand their leads and customers.
Development resources planning
The analysis of product demand helps PMs to formulate marketing decisions. The product demand analysis analyses and measures the forces determining demand.
Product demand research is especially essential for companies with a significant dependence on secondary producers or resources obtained from outside sources.
So, start assembling your product team based on the product's needs and obtain equipment and contractors. This step involves developing team responsibilities, procurement needs, contracts, budgets, performance measurements, and rules and procedures.
The market plan evaluates the product's internal position, competitors, and market conditions. List internal and product strengths and weaknesses. Then evaluate the competition.
This will help PMs determine how their product differs from the competition to build marketing plans highlighting its strengths. The analysis should also incorporate the company's present or prospective market share and the competition.
A product manager can improve the product's marketing decisions by studying customer demand. The demand analysis involves conducting research and taking measurements to determine the factors that determine product demand.
Types of Product Demand
Product Managers conduct product demand research, which is broken down into 5 distinct categories. Why is it necessary for Product Managers to be aware of these diverse types of product demands?
They can improve their readiness to launch a product by gaining a deeper understanding of the customers. Because PMs are so well-known in the tech industry, they are routinely used as role models. Personalization and UX design also play an essential role in their business acumen. Product Managers are well-versed in their industry's competitors and allies, which comes in handy when formulating business plans.
The following is an explanation of each of these types of product demand, followed by several examples:
The desire for a product intended for final consumption is referred to as direct demand. For instance, the desire for televisions, automobiles, and other technologically advanced products is an example of direct demand because it results from customers' biological, physical, and other human demands.
Product Managers can build a strategy to generate direct demand for their products via;
- Brand awareness
- Prompt engagement through a deliberate content strategy (blog posts, social posts, videos, podcasts, paid campaigns, white papers, e-books etc)
- Partner marketing investments
The term "indirect demand" describes the desire for a product that develops due to the demand for other products. It applies to various products, including primary resources, intermediary products, machinery, and equipment.
In addition to this, the factors of production—namely product designer, product developer, researcher, marketer, and capital funds—have also contributed to the development of demand for a tech based product. As an illustration, the need for tech savvies in building the tech product in the industry is an example of an indirect demand.
Product Managers can increase indirect demand statistics for their products by focusing on these five forces models listed below.
- Law of demand and supply
- Threat of new product entrant and substitutes
- Bargaining in the market economy
- Rivalry among existing products
- Influence of the purchasing public
For example: Apple competes directly with the companies like Samsung, HP, and Google. The smartphone market is fiercely competitive, and consumers frequently prefer the iPhone over other alternatives. As a result, the competitors mentioned above face an increase in indirect demand due to the popularity of the Apple brand.
Non-existing demand occurs when customers don't buy a product. This may be due to customers' limited spending power or other requests.
PMs' best defence is thorough product research. Product research reveals consumer data such as what they buy, when, and where. These data help create personalised customer offerings and guide marketing strategy. An early smartphone prototype is still being made despite having no market. Customers prefer cell phones with greater features.
The term "latent demand" refers to the unique circumstance in which customers need a certain kind of product, but the market does not yet supply it.
Technology advancements and tools for tracking customers reduce the likelihood of this type of demand developing. Tracking tools that can collect information on user behaviour, such as conversations that users have online and purchases they make, can help product teams predict patterns and consumer needs.
This information can help product teams anticipate other products that users may use in the future.
Composite demand is a demand of products that can be used for more than one purpose. For instance, the steel demand is a result of its utilisation in the production of various goods, such as cutlery, pipes, cans, and so on.
When it comes to a good or service with composite demand, a slight shift in the price might cause a significant shift in the number of people interested in purchasing it. This is because different product applications will result in different levels of demand for it.
Continuing with the last illustration, if the price of steel goes up, the prices of other steel products will also go up. In such a scenario, individuals may choose to reduce the amount of steel-based products they buy.
When performing an analysis of the demand for your product, it is crucial to differentiate between these different types of demand. Still, it is also essential to see their links wherever feasible.
How to Conduct Product Demand Analysis in 8 easy Steps
Product Managers utilise product demand analysis, which helps comprehend the customer's desire for a product, to determine whether the company can readily join the market and receive the predicted profits.
But do you know that tech products are influenced by numerous factors?
Take a look at the below given factors:
- Due to their small size, small businesses can only handle a small number of projects, which means they can only afford a small number of products.
- Users who work on different projects may have varied needs for products as the firm grows and the number of teams increases.
- No tech solution can provide all of the capabilities required for large-scale enterprise projects due to the complexity of those projects.
- Customers that utilise a variety of solutions to meet their technological needs are more likely to employ a variety of products targeted at the same audience and for the same types of applications.
Now that we have a better understanding of how products are affected by various factors, let's have a look at the 8-part model of product demand analysis.
Define your market
Initial market definitions should be broad. Who could you sell to? How much money do they have?
These are key questions for determining your market. By including all potential end-users, a broad definition will help you uncover demand drivers and reduce the risk of product alternatives.
A product's or category's market share is determined by factors other than market size. Product substitution defines a market. Customers may react differently to a substitute product's pricing or performance.
You should know which market group your new products will serve. Many strategies incorporate all essential alternatives (both current and potential).
Customer interviews can show what alternatives they're considering or how they utilise the product, indicating a possible transition.
Assess the maturity of the market business cycle
Following the definition of a market, the next step is to assess where the company is in its life cycle as a business. It progresses through three stages.
In the beginning, the "emerging" stage, there is a strong demand from customers, but there is a limited supply of products. At this point, known as the plateau stage, the level of products available on the market is equivalent to the level of demand. In the third decreasing stage, there is a slowdown in demand for the products.
Identify your niche
Product Managers can use a market niche to differentiate themselves from competitors and meet unmet needs in their niche.
A market niche is a gap in the market where the USP is understood by a subset of customers or the audience. If you're familiar with the saying "jack of all trades, master of none," you know the importance of specialising and standing out in your industry.
When conducting an analysis of the market for a particular product, it is essential to be as specific as possible and avoid creating a more accurate picture by focusing on the entire market or a considerable portion of it.
Keep this in mind when figuring out how big your market really is. Eventually, you will need to choose a tailored message that will not communicate to every single person in the market.
Conduct demand forecasting for your niche
Your information sources are the only thing that can determine how accurate your demand forecasts can be. Utilising data from other sources is necessary to provide a more precise demand analysis.
Regarding the demand forecast, accuracy is the most significant factor determining how successful this exercise will be. The better your prediction is, the better you'll be able to match your strategies to it.
It is not a game that is easy to understand. The most accurate projections are those developed from a thorough and data-driven understanding of the customer's requirements.
Let's have a look at a few of the recommended best practices.
- Google Keyword Tool – It's important to consider product-market fit, and it's something Product Managers should always keep in mind. Product Managers must adjust their plan when their target audience expands, their expectations shift, and their requirements change. Product Managers might think this is difficult, but it isn't always so. Unless, of course, they pay attention to what their target market actually wants and needs. Keyword research here comes to the advantage. In the early stages of product development, using search data to see what your potential customers are already searching for benefits the most. And it's a goldmine for product demand analysis as it gives an idea about how many people are interested and searching for the product.
The keyword research approaches help Product Managers and the team better understand the industry and provide the audience with what they want. This ultimately shows the direct demand people have for the product or for the product category.
There are multiple keyword research tools for the same as depicted in the picture below.
- Google Trends – Google Trends provides information about which products are in demand in which locations and at what times with proper analytics. To accomplish this, ensure the graphs' temporal range is sufficiently broad. In this approach, you can determine whether or not the demand is growing over the long term.
- Speak with prospects – You can include all effective alternatives in a few ways (both current and potential). Interviewing industrial clientele can reveal potential alternatives they're considering or product usage trends that indicate future switching possibilities.
- Market research may reveal new consumer product insights. By reading about technical advances or talking to technology experts, you can detect potential breakthroughs that could threaten your sector.
Calculate market growth potential
To pique the interest of executives and get their approval for their new product or service concepts, Product Managers sometimes present eye-catching market potential. These concepts attract attention, but it also has a high risk of ignoring important considerations and overestimating the available chances.
There is a more effective method for determining the market size for SaaS products. Product Managers can increase market potential estimations through product planning when they use a structured methodology that narrows down market opportunities from broad estimates to opportunities that are more targeted and segment-based.
Product Managers must utilise reliable frameworks to evaluate the potential for market demand and defend important components and assumptions of the business plan.
Evaluate the competition
Determine the number of companies that compete with you and the percentage of the market they hold. It is dependent on where you are in the various stages of the economic cycle.
Before you go on to analyse the products offered by your competitors, you should first determine your target market's requirements and how you may convert those requirements into a profitable business opportunity.
It is necessary for you to investigate the products offered by your rivals to identify the issues that are associated with the existing offering. You will first need to precisely identify the issue at hand and establish the imperative for a superior solution.
Find out about your top three competitors.
- What do they sell, their price and market share?
- How do they distinguish their products and why do customers trust them?
- What's their marketing strategy and their favourite features?
- What are the product's missing features and when do they add features?
Some solutions to address the questions above:
- Analyse their website and notice the product's features, pricing, documentation, and videos.
- Watch their every move like customer, blogger, or influencer product videos and contact social media followers of your competitors' products.
- Request a brief customer survey and ask for client feedback via CNET, Google My Business, MouthShut, Capterra, TrustPilot, and Yelp.
Smart competitor tracking solutions allow you to maintain tabs on what your competitors say about you.
Forecast the drivers of demand and project how they are likely to change
Learn to identify the factors that drive demand in each category and then forecast those factors. In this context, a product manager can effectively use regressions and several other statistical tools to locate some factors that contribute to shifts in historical demand.
However, this is just the beginning. The more difficult task is to explore beyond the data on which regressions may readily be built to additional factors for which data are much harder to find. A product manager needs to form an opinion on how those other aspects might shift in character in the coming years.
The example of a reprographic paper is used to look at the final product. Using the information they had, the product team put all of the reprographic paper into two separate groups: plain-paper copier paper and printer paper that doesn't have an impact on the page.
Without this crucial point of divergence, demand drivers would be obscured, making it difficult to make accurate projections.
Conduct sensitivity analyses to understand the most critical assumptions and to gauge risks
Single-point demand projections put products at risk. Some macroeconomic indicator forecasts may be wrong. Even with a comprehensive examination, the other demand drivers' assumptions may be wrong, especially if discontinuities are on the horizon.
Product Managers who ask, "What factors could drastically affect this forecast?" make the most accurate projections. They are more likely to recognise potential risks and discontinuities, such as competition technology breakthroughs, customer industry improvements, and supplier cost structure changes.
Once a baseline estimate is made, it's hard to tell how far off the goal is. A sensitivity analysis is easily done by altering assumptions and calculating the effect on demand. A more specialised method improves understanding.
To begin, consider and quantify the regions with the most strategic risk. A product team's strategic choice may be affected if demand is lower than predicted. Small forecasting errors can have big consequences.
Next, estimate its likelihood. The white paper's case study predicted ongoing market expansion but at lower levels than in the past.
Demand could fluctuate with the economy in any given year, but the key question was whether it would start a steady decline. The ensuing supply-curve research showed that prices are likely to decline significantly.
The group proposed two hypothetical courses of action for a progressive decline, one based on economic conditions and the other on end-use patterns.
These hypothetical settings indicated causes that could lead to a decline in demand and provided a basis for evaluating a slowdown.
Best Practices for Product Demand Research
Product demand research is needed to build something consumers desire to use. Product Managers must grasp its worth, whether it's a new product or feature update.
How will you sell it? Thorough product demand research throughout development reduces risk and boosts ROI. Data shows customers' requirements and market potential. When you understand what users want, not what you believe they want, you'll have more satisfied (and recurring) customers.
Each phase in the product research strategy is determined by some criteria, including:
- How much time and money you'll need to put into the product.
- Your target audience's ability to reach you
- If the return on investment for product research is high.
Although new product demand research often incorporates quantitative and qualitative research, the latter delivers more reliable results (which provide detailed feedback).
Is there a better quantitative method?
As a means of gathering information for new product development, product demand research frequently recommends an online survey. It's a form of quantitative analysis aimed at gaining a broader perspective on a product's features and benefits.
Because of their ease of use, online surveys are a common way to gather information about potential products. Online surveys are often emailed and can be completed on a mobile device.
Furthermore, you can acquire immediate feedback from your target audience by using online questionnaires. This practice is budget-friendly than other quantitative methods. Additionally, this research will help you design and implement the survey and advise on how to use the data to develop new products.
What is the most effective method for conducting qualitative research?
Focus groups are the most popular method for product teams to do research. If you're looking for a consensus on a certain product, focus groups are more useful than one-on-one interviews.
Product teams can use them to explore hypotheses, develop questions and better grasp concepts. Using focus groups has several advantages that should not be understated.
#1. Consider the qualitative data as well
This type of market research is exploratory in character, and focus groups are a type of qualitative market research. They're a great alternative to a traditional survey because they're so customizable.
With focus groups, your team can get actionable insight into your product that can be put to good use. According to a recent survey, more than 70% of your potential clients rely on online evaluations before making a purchase.
You can learn more about "what" and "why" by conducting a focus group.
- For products like yours, where do people go to read reviews?
- What constitutes a positive review?
- At least three stars, but no more than four?
What's the big deal about user feedback here? In a focus group, the purpose isn't necessary to agree on a course of action or come to a consensus. Instead, one should focus on identifying one's own emotional responses to a given topic. With this high-quality data, your team can alter things like marketing and sales.
#2. Gather a variety of viewpoints at the same time
Surveys can be a bit of a pain to fill out. Sending out a survey to hundreds or even thousands of people and waiting weeks for a sufficient number of responses is standard procedure. Depending on your target audience and how many responses you want to collect, this procedure may take less time or more.
On the other hand, a focus group typically consists of 4-12 people who are most like your target audience. Look for a provider specialising in qualitative recruiting if you want to conduct focus groups. This will ensure that the people participating in your group discussion are highly qualified and focused on the topic.
It's possible to get a comprehensive picture of your target audience's thoughts and sentiments to conduct new product demand research.
You won't doubt how it all comes together in the end. You may see trends and patterns right away.
#3. Using focus groups to dig deeper into customer needs
Customers' ever-evolving demands and needs necessitate ongoing innovation. Focus groups are an excellent way to better understand your target demographic's shifting needs.
They're a terrific opportunity for you and your consumers to get to know each other better. Using focus groups is a terrific way to gather information from a large number of people in a concentrated area. Customers can get an inside look at product scope and possibilities by participating in a focus group.
The final takeaway!
When you launch a SaaS product, you will need to conduct ongoing product demand research to ensure that your product will continue to provide value to your customers on a monthly basis. Customers want to know what they can expect from a product, where it stands, and what makes its competitors successful.
Your team can avoid a lot of headaches and unnecessary backtracking in the future if they perform the necessary research at the beginning and make a consistent plan to continue to listen to their customers. Product Managers can see how their product stacks up against the competition by gathering primary, secondary, quantitative, and qualitative data.
Try out Zeda.io today for the easiest and most effective way to communicate with your customers and maintain their interest as your product evolves. Zeda.io allows you to connect, build, and deploy native integrations fast and efficiently, rather than adding to your current backlog of product projects.
Consequently, this will assist you to achieve product-demand analysis and bring automation to your application. Our cloud-based services allow large businesses to avoid the costs and security risks of shadow IT—the use of unapproved products at work—by making it easier to deploy various SaaS product resources.
Completed research isn't stale. Trends, preferences, and needs vary regularly, so acquire new data and evaluate conclusions.
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