How market validation justifies new product investment

You’ve got a brilliant idea for a new product. You know how to make it. So nothing’s standing in your way, right? But, before you start, ask yourself: how am I sure that people are going to use and pay for this product?

To answer this question, we spoke to Malte Scholz, Head of Product and CEO at airfocus, and Martín Burgener, Product Director at eDreams, who gave us their insights on market validation.

In this article, we’ll look at:

Market validation is an essential step in the product development process between having a new product concept and starting the process to create it. As the name suggests, market validation involves researching potential users of a new product to gauge how viable the product or business idea would be in the target market.

Market validation can be used when developing a startup idea centered around an innovative new product, launching a new product within an existing business, or developing a new feature to add to current products.

Undertaking a market validation project is hugely beneficial for two main reasons:

Developing products takes a lot of time and financial investment. So, when those products are created and launched but fail to attract users in the market, the sunk cost can be significant. 

Market validation helps to avoid these negative situations by making sure you understand your users, and that you’re not building a product which no one wants or needs.

To look at it a different way, market validation research also helps you to create a better product by more accurately fulfilling users’ pain points. During the market validation process, you’ll gain an understanding of your users’ needs and pains. These insights will inform a product team on what products or features will best bring value to users.

The reality of developing new products is that it costs money. By undertaking a market validation process, the viability of the product’s success can be more accurately determined. This makes investment in its development far easier to acquire and to justify in the eyes of stakeholders.

A startup will likely have a short window of time after founding and before initial funding becomes necessary to continue growing.

A team within an existing company will have to justify the cost of the new product before it’s given a green light from the company’s management.

Even a solo entrepreneur creating a product on their own will have bills to pay and limited hours in a day. So before they invest their time into building the product, market validation can assure them of their product’s viability for success—or it can help them avoid spending months on a product unlikely to succeed.

In each of these scenarios, investing time and money into a product is an enormous risk. So, before resources can be allotted into development, market validation helps to justify the investment by confirming the existence of a target market willing to buy the product.

The process of running a market validation test can vary a lot, depending on your resources, the type of product you’re developing, your industry, and the demographics of your users. But, there is a solid framework in which most market validation processes can work.

A standard market validation plan includes:

Only with a goal and a hypothesis, or assumption, in mind can you start the market validation process. After all, this process is about testing assumptions relating to market viability with real users of your product.

Start by writing down the assumptions you want to test first. The best place to start is the assumptions that are the most critical to the overall success of the product.

Some examples of vital assumptions to test could be:

Once you know which assumptions you want to test, you'll need to choose a research method that best tests your assumptions. The most common market validation methods are customer interviews and surveys. We'll look into these methods and more in the section on Market validation methods below.

In this step, you also want to be creating the test itself. For interviews and surveys, you can now put together the right research questions to ask the participants.

Once you’ve created the questions, it’s good practice to put it through a dry run. For this, you should simply ask someone to go through the test with you. At this stage, representative users aren’t important, as you’re just testing if the test itself will make sense in the real experiment.

An essential part of any type of research is recruiting research participants.

First off, these participants need to be representative of the actual users you’ll be targeting for your product. Without representative test users, the feedback you’ll get will be biased in unrealistic directions.

You may need to offer incentives to convince people to take your experiment. If you require the participants to be physically present, then you may also want to cover their travel costs. For other experiments, you could offer a free trial of your product once it’s released.

There are a number of ways to recruit participants for your market validation test, from using your personal network to posting on social media, and from using existing product users to employing guerrilla testing methods. This article on recruiting research participants goes into detail on each of these methods.

At this point, you are ready to actually run the experiments. You know the assumptions you want to test, you’ve chosen an ideal method of conducting the test, and you’ve recruited enough participants to get useful feedback.

A key piece of wisdom here is that being proven wrong is not the same as failing. As Martín explains, market validation is about proving your assumptions wrong time and time again until you get the idea right:

It’s important to see failure as part of a successful experiment rather than something negative itself. Having assumptions being proven wrong is inevitable, so the better mindset is to consider them a regular part of testing.

This also fits as part of broader advice: stay humble. Product teams should never assume they really know what users need and want. Keeping a mindset of humility, and assuming you never already know the answer, means always listening to the customer.

Market validation is not a one-off test. Rather, it’s a process that should continue all through product development. Humility during this process can not only help product teams to stay positive in the face of setbacks but nearly always leads to better product development.

There are a number of market validation methods that can be used, and each has its benefits and drawbacks. It’s important to make sure you use the right methods, and often that means using a combination of multiple methods to get a more complete view of the market.

Below, we’ll take a look at some of the more popular market validation methods:

Running customer interviews and surveys is a popular and effective way of doing market validation tests, largely due to the qualitative data gained from customers’ feedback. These market validation methods of research are very flexible, allowing you to learn about your users from many different angles.

With a survey or questionnaire, you get the benefit of a huge volume of responses, while interviews allow you to dig deeper into people’s feedback and uncover their true problems.

Involving a Customer Advisory Board (CAB) takes this process a step even further. CABs are a group of users who meet with a company regularly to offer feedback and advice on their product development. They help product teams to challenge biases and assumptions of what users need and want, and are invaluable in more deeply validating a new product.

Maze’s rapid testing platform allows for a variety of validation tests to get insights early in the product development cycle. Learn more.

A Minimum viable product (MVP) is the most basic version of your intended product, that still offers value to the user.

MVPs are often used for market validation to test the level of interest users have in the product and how they interact with the product itself. If users show continued use of the MVP, then it justifies investing in creating the fully-fledged version of the product itself. It also allows you to get feedback from your target audience and detect any major issues with how they’re using it.

The choice of whether or not to create an MVP often comes down to what it takes to create it. If you’re creating your company’s flagship product, then it makes a lot of sense to make an MVP to start bringing in revenue while the product is still being built. For additional products, if it’s going to take a year to create even the MVP version of your product, and you’re aiming for a lean process, then it may be better first to validate user interest in the product in other ways.

A common argument against creating an MVP is the time and financial investment it requires to build. A workaround solution, which still allows for lean market validation, is Wizard of Oz testing. "We sometimes do what we call “Wizard of Oz”. This is where the user thinks the site is doing something, but really there’s a person behind doing it. It’s not a long-lasting solution, but it allows us to measure and validate if the value is there. Then we say, okay it makes sense to build an API because there’s a market there," explains Martín.

This tactic allows you to offer a service to your users without having to build a product to do it automatically. The main drawback is that it does require you to have staff on-hand who can pick up these tasks. However, if this feature is a paid one, the cost of the employee can be offset by the income of the feature itself.

Prototyping can function as an invaluable tool for market validation, primarily because having a working version of your intended product allows for more robust product testing.

Allowing test users to interact with a prototype version of your product can unlock better insights into what works and what doesn’t. It means people aren’t imagining a product explained to them in words. Instead, they get to actually use the product, and better imagine themselves using it outside of the test.

Read more about prototype testing.

Having a prototype also allows for usability testing. When undertaken with test users working on a real, albeit early-stage product, usability testing tools can give vital early feedback on the product’s design and UX, helping to create a better product down the line.

Usability testing is about getting users to interact with your digital product by completing pre-determined tasks while taking note of their decisions and reactions. This type of testing lets you see if your product is easy to understand and use for prospective customers.

“At eDreams, we have what we call Wednesday Labs. We invite 6 people to our offices and we present a new project for them to navigate and test if they can get from A to B. That’s more qualitative than quantitative, but it allows us to test many things,” says Martín.

Market validation can benefit from usability testing because it allows potential users of the product to interact with it, while also giving their thoughts on the product itself and helping you to identify issues with ease of use and functionality.

Maze's usability testing features allow you to test ease of use and validate product ideas with your target audience rapidly. Learn more here.

This method is particularly useful if you’re conducting market validation for a new feature on an existing, proven product. You can include the new feature within the digital product the user is already aware of and test their responses to the new feature.

An easy way to gauge possible user interest in your product is by taking a look at online search results. This method involves seeing how many people are searching for particular phrases online each month with tools like Semrush or Ahrefs.

For example, let’s say your product idea is to create an online learning platform for people with autism. You could search for “e-learning” and “online video classes” to gauge the popularity of your industry and product, and then “online video classes for people with autism” to see how many people are already looking for your product.

The benefits of this method are that it’s a very quick and cheap method which gives you a general idea of the existing market interest in your product. You can even geolocalize results to see if there are countries with particular interest.

Another similar method is looking at Google Trends. This free tool allows you to see search patterns over time for particular keywords. While tools like Ahrefs and Semrush give numerical search volumes, Trends shows how search intent changes over a given period of time. For example, the Trends graph below shows a clear spike in interest for “online video classes,” coinciding with the start of lockdown measures imposed due to the 2020 Coronavirus pandemic. Seeing that your proposed product is steadily gaining in interest can help to validate it.

Finally, another market validation method is to A/B test online ads highlighting different aspects of your product. The point here is to see how much your users value particular product features, which can give insights on where future product development should focus.

Martín explains: "We sometimes do fake ads for Search Engine Marketing (SEM) tests. We compare a campaign that says 'The cheapest flights' and another that says 'The cheapest flights with free cancellation'. When you click, you get to the normal eDreams page, so if you see that the click-through rate is better for the second one, you see there’s value for 'free cancellation'."

This method can be used in tandem with others. For example, if you are running a Wizard of Oz test for a proposed new feature, then online ads can simultaneously be run to highlight the new feature. If there’s a clearly higher click-through rate for the ads with the new feature, then it validates the development of the feature as a digital product.

For eDreams, market validation was essential while they were working on a project focused on offering flexible flight tickets. This came with several assumptions. They first tested if their target customers valued free cancellation on their tickets at all. While in theory, it seems like an obvious advantage for travelers, the assumption still needs to be tested.

After conducting market validation tests, they found that despite it being a big trend in their industry, customers didn’t initially see the value of flexible tickets. “We tested if people valued flexibility. The first reaction from people was ‘I’m paying this because I want to go to Rome, why would I want to cancel?’ So, it took us a lot of iterations and work to get people to understand the value of flexibility, like if your boss doesn’t approve your holidays, or if you get sick, or if there’s a worldwide pandemic,” said Martín.

eDreams worked to better explain the value of the flexible tickets and found that, with the correct context, explanation, and phrasing, these potential customers were indeed very receptive to the idea and did value flexible tickets.

These results are interesting and indicative of the value of market validation. Asking open-ended questions and listening to customers allowed eDreams to see that there was value in offering flexible tickets, but that it was unlikely to be successful in the way they initially planned to present it to customers.

Read on more usability testing implementation examples.