When I was studying for my Master’s degree in marketing, we had a class assignment to complete a product marketing strategy for a local construction manufacturer. Sounds simple enough, but the catch was that it had to focus on a particular product they were struggling to sell. 

My class of marketing students ended up roasting the company’s senior marketer about why the product wasn’t selling. This sounds bad, but there was a good reason –  the manufacturing company had done very little market validation before launching the product. 

Their target market was construction stockists and independent contractors, whose main goal was getting good value for money. However, the product they were selling to them was expensive and spun as “luxury quality.” 

The consensus of our reports advised them to go back to basics and talk to their target audience about what they wanted.

This is a common problem for companies that fail to validate their product ideas before taking them to market. So, if you’re a startup entrepreneur or a product manager, you need a deep understanding of the market validation process to ensure your product succeeds.

In this guide, we’ll cover:

• What is market validation?

• Market validation versus market research

• Why market validation is important

• Market validation methods

• How to do market validation (step-by-step)

• Market validation in action: Monzo

Let’s help you improve your chances of success with your new product idea.

What does market validation mean?

Market validation is one of the crucial early-stage steps of the product development process. Its purpose is to help you evaluate the profitability of a new product or business idea by researching your potential customers to see if there’s a product-market fit. Which is basically just a fancy way of saying, “Does our product idea fit customer needs?”.

You start the market validation process after completing an internal idea validation process. It’s also usually after you’ve done some market research (such as checking out the market competition, Google trends searches, and SEO research) and created product concept designs or built a minimum viable product (MVP) to help you conduct the research.

Market validation versus market research

While the names sound similar, market validation and market research are very different processes.

For starters, market research helps you figure out more about your target customers – their demographics, pain points, overall market size, etc. – with the goal of building user personas. With market validation, you already know your target market well; what you need to find out is if your product idea is something they’d use and purchase or subscribe to. 

This main difference also means you do these processes at different stages of product development. Market research is the first stage, and market validation starts a little later (but still happens at an early stage). 

The only real similarity between market research and market validation is that you’re doing research involving customers or potential customers.

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Why market validation is important

You can probably tell at this point that market validation is important, but why? Here are the reasons, in case you’re tempted to skip this step and run away with your idea.

It helps prevent product failures

Like the example I gave in the introduction, taking a product to market without validating it first is a huge risk and dramatically increases your chances of failure. Why? Because you don’t know if there’s market demand.

Of course, products can still fail from other causes, even if you’ve validated them. Still, the chances of that happening are significantly reduced after market validation research.

It improves your product ideas

You'll test your MVP with potential customers during the research process (which we’ll discuss later). From this, you’ll get valuable customer feedback that will help you consider options you might not have thought of.

You’ll also find the process will help other product stakeholders, such as product owners and other senior product team members.

It helps to secure funding

All businesses have some type of budget constraint. Suppose you’re a product manager in an existing company. In that case, you’ll have a defined budget for new product development, and market validation will help you figure out if your idea is financially viable with your budget in mind.

If you’re an entrepreneur with a startup idea, market validation is crucial for helping you secure funding to start the business. It does this by helping you figure out how much money you’ll need to get started and what to ask from investors or banks. 

If you haven’t validated your product idea with your target market, you’ll find it extremely difficult to get funding. After all, who would want to invest their money in a product they don’t know will sell?

These are only a few reasons market validation is vital for product development, but they’re solid motivators for putting in the time and effort to get it done. But how do you get it done right? Keep reading to find out.

Market validation methods

Before we get into the step-by-step market validation process, we must look at the tools you’ll need to complete the job. We’ll split this up into the different types of tests you can conduct after you’ve made an MVP: moderated and unmoderated.

Moderated tests

For market validation, two types of moderated testing stand out as being the most valuable – interviews and focus groups.

Both of these methods come with their pros and cons. For example, when you’re doing in-person customer interviews or focus groups, the participants are less likely to get distracted, and you can also observe your participants' body language. 

The main downside to these testing methods is that they take longer and aren’t scalable (unless you have a massive budget). However, they can be worth these compromises to be able to gather rich qualitative data for your ideas.

Unmoderated tests

Unlike moderated tests, you can create unmoderated tests and send them out to a virtually unlimited number of people. So, what are some useful unmoderated tests you can do for market validation?

Design surveys

With a design survey, you can figure out if the visual elements of your new product idea resonate with your target audience. You can also use design surveys to test any landing pages you’ve designed for the product to maximize its value proposition.

Prototype testing

After building your MVP, you’ll want to get it in the hands of your potential users to test its usability and functionality. For this job, look no further than prototype testing. If the prototype works well and your participants find value in using it, you’ve got some great market validation data to move forward with.

Preference testing

Another useful method for market validation is preference testing. These tests help you understand which design best achieves the goals of your new product idea. This method is beneficial for screen layout designs (for apps or websites) or finding the right messaging for your product. 

Online text-based surveys

You can also create a survey to help narrow your product concept if you haven’t built a usable MVP yet. These surveys can help you drill into pricing preferences and the business models you might want to consider.

For example, suppose your product idea uses a subscription model. In that case, you can use a survey to determine your customers' best recurring price range and gather feedback on your proposed idea.

Try this survey template to help you evaluate pricing models for your product.

You’ll likely want to use these methods throughout the product development process. Still, they’re incredibly useful early on to help you validate your product idea before diving too deep. 

How to do market validation (step-by-step)

Now you know some of the methods and tools you’ll be using in your market validation process, let's break it down step by step. 

Depending on whether or not you’ve done the basic market research first, you’ll usually have four steps to validate your product idea: defining the target audience and your assumptions about them and your product, building your tests, recruiting participants and conducting the tests, and finally analyzing the results and making iterations.

Step 1: Defining the target audience and assumptions

During the market research phase, you’ll have identified the audience you want to target with your product. However, when starting your market validation, you’ll need to make sure you’ve defined those customers clearly and carefully. 

For example, are you targeting early adopters or laggards with your product idea? Would your product be helpful to those you’re targeting now and in the future? Do you plan to have any international expansion with the product? 

Next, make a note of your core assumptions about the market you’re targeting and your product’s positioning, such as:

• There’s a demand for this product in the market.

• This product solves market needs.

• Our product pricing is just right for this market.

• The market has the right know-how for this product.

• The target customers in this market will want to use our product.

Before you’ve validated your market, these are assumptions rather than facts. The market validation research will help you test these assumptions to find out if they’re true or if you need to go back to the drawing board.

At this step, it’s also important to define the success metrics of your research to help you in your analysis.

Step 2: Build your tests

For this step, you can use the testing methods we outlined above to help you prove your assumptions about your target market. Naturally, some methods are better suited to testing specific hypotheses than others. 

For example, “there’s a demand for this product in the market” and “the target customers in this market will want to use our product” are both big assumptions. Any core assumptions along these lines are better suited for moderated tests, where you can pick up on nuances and expand on your participants' answers. 

However, “our product pricing is just right for this market,” or any similar assumptions that address a specific element of your idea, are great candidates for unmoderated testing methods like preference tests or questionnaires. 

Of course, if you’ve built a first-draft MVP, you’ll want to set up prototype tests to get user experience feedback on it as quickly as possible.

Step 3: Recruit and test

You’ve already identified your target audience within the market and built the tests you need – at this step, you simply put them together. However, that’s not to say recruiting participants is easy, since members of your target audience may not be interested in participating in research.

That’s where using a research panel can be useful if you’re stuck trying to find suitable participants for your tests.

However, once you’ve recruited your participants, you can send out your tests (or organize your interviews or focus group sessions). With unmoderated tests, you can start getting data back the same day, but you’ll likely have to wait longer for qualitative data.

Step 4: Analyze and iterate

After conducting your tests, you can look at the results and determine if your initial assumptions about your product and the market were accurate. Chances are, the first time, some of your assumptions will fall a little flat, and you’ll need to do a new iteration of your product idea to better address the responses you received from validation testing.

If the research tells you most or all of your assumptions were wrong, you’ll have saved a lot of time, money, and effort in fully developing a product or new feature destined to fail in your target market.

These are the crucial steps to undertaking market validation research, and as you’ll notice, they also function as a loop for a continuous product discovery cycle.

Market validation in action: Monzo

Monzo is a FinTech bank provider in the UK and the US (full disclosure: I’m an ex-employee), regularly bringing out new features and bank products. To help them validate the market for their product and feature ideas, they have a dedicated section of the app called “Monzo Labs.” 

In Monzo Labs, the developers release Beta prototypes of their product ideas. Any customer can activate the Beta feature on the app. Here’s what the team at Monzo is testing at the time of writing:

As you can see, the team also has a link to a feedback survey (customers also get in-app prompts to complete a feedback form if they’ve activated the Beta). Several features and a whole app redesign have come and gone through Monzo Labs, helping the product development team validate their ideas with its existing customer base. 

At the time of writing, they’re also using a waitlist system to help them verify the market demand for a new investment product with their customers:

Naturally, it helps that a decent portion of existing Monzo customers would be considered “early adopters” and are used to trying out new products and features for their system to work the way it does. 

Start your market validation testing today

If you’ve gotten this far, you’re probably itching to start validating the market for your product idea. That’s good! Don’t skip this crucial step of the product development process. You might think your product is a fantastic solution, but customers might not (like the example I gave in the introduction).

Of course, you’ll need a solution to help you with your validation tests. With Lyssna, you can build and send tests to as many potential customers as you need. 

Start validating your market today and help bring your product idea to life.

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Alexander Boswell is the Founder/Director of SaaSOCIATE, a B2B SaaS, MarTech and eCommerce Content Marketing Service and a Business PhD candidate. When he’s not writing, he’s playing baseball and D&D.