A critical part of a Product Manager’s job is making sure that the market they are addressing worth the effort. If so, they need to find and learn everything about competitors.

Understanding market size and how to penetrate that market is key. If the market is too small, it would be hard to make money no matter how innovative or competitive the product is. If the market is too big, it would be wiser to segment that market to better focus the team’s effort. The two approaches to size the market are top down and bottom up analyses.

At times, the people that use the product (users) are not the same that pay for the product (customer). This is why is important to define the target buyer along with the target customer.

Defining The Target Customer

In a market, different customers have different needs. When exploring the problem space it is important to define the specific customer segment first. Then, target the specific needs of that segment.

In practice, the reality could be different. Sometimes a company introduces a product with focus in a customer segment and end up attracting another one. This is a common scenario.

When companies try to expand or change their target customer they use different approaches. They either start with small customers and move “up” to larger ones or they do the inverse and move “down”. If the company found Product/Market Fit in one industry vertical they may want to target adjacent verticals as well.

The goal is to be clear about the customer you are targeting and their needs.

Market Size Estimation

Market size estimation is especially important for new products or startups. It helps determine how big is the opportunity the product addresses.

The exercise can be challenging. Sometimes historical data is not available or the industry data is not easily accessible. The best way to start is by gathering sales and population data from public sources.

The two main approaches to market size estimation are bottom-up and top-down.

Bottom Up Analysis

A bottom up analysis starts by estimating potential sales. Based on current market trends, it evaluates the sales of similar products and where they are sold. Then, calculates the portion of the market it can get.

While it takes more effort, the result is usually much more accurate and conservative. The goal is to determine an estimated total sales figure.

Steps:

  1. Ask yourself where people currently buy, solve, or pay for a similar solution.
  2. Look for the sales volume for existing solutions. There must be at least similar offerings.
  3. Make a conservative assumption and calculate the percentage that you could get in a specific timeframe.

This approach is more accurate because it looks at patterns that exist in sales today rather than the total market. As a Product Manager this should be way to do it.

Top Down Analysis

A top down analysis starts by determining the total market size. Then, estimating the share of that market.

While is very straightforward to do, it is also too optimistic.

Steps:

  1. Calculate the current Total Addressable Market (TAM).
  2. Make an assumption and calculate the percentage that you could get of that TAM.

This approach is not the most respected way of estimating the potential market size. As a Product Manager try to avoid it.

Customers vs. Users

In some industries, it is useful to separate the person who makes the decision to buy the product from the person who uses the product. There might be also other stakeholders involved in the decision.

The customers and users have very different expectations about the product. The former are more interested in features and general aspects of the product. The latter are interested in usability and technical issues.

The importance of defining the target customer along with the target buyer is critical. Product Managers need to keep this in mind when collecting feedback and making product decisions.

Competitors

Competitors are the reason why your target market looks promising. They can be seen as a validation form. This is why you should try know who they are by capturing all the players in the field.

A good practice is to record every competitor that can you find, known and unknown. As a Product Manager in a company, you should already know who your biggest competitors are.

Then the goal is understand their strengths and weaknesses and keep an eye on their moves.

Finding Competitors

At times, some competitors might not be that obvious to find. They might be using different keywords or wording to market their product or have a weak brand presence.

In any case, there are a few good techniques to find competitors:

  1. Search exactly how the customer would complain about her problem. This is how they find them.
  2. Search on popular sites where people talk about their problems. These are Reddit, Quora, Twitter or Hacker News.
  3. Search exact phrases of your one-line pitch. Try multiple variations.

Competitors Types

A good part of what makes you successful as a Product Manager is your ability to keep track of your competitors. This is a common way to classify your competitors.

  • Direct: These competitors target the same customer group as your product. They solve the same problem and have a similar solution and pricing as your product. The customers have to make a decision on which one is better so your product needs to be competitive.

  • Indirect: These competitors solve the same problem as your product but in a different way. They target a customer group that might overlap yours. Make sure you don’t loose too many customers to them.

  • Potential: Potential competitors target a different problem but to the same customer group as your product. The customers have to compromise when choosing between you and them. Make sure they can’t do the switch too easy.

  • Substitute: Substitute competitors solve the same core problem but in a complete different way. They target a different customer group too. Make sure your product is at least better than these.

Understanding Competitors

Product Managers need to have a deep sense of what their competitors can do. More important, make sure you are ahead of the curve and know what their next move is. Their strengths and weaknesses will help you make better product decisions.

The five dimensions that are crucial to understand about competitors are:

  • The Product team: You need to know how good is their Product team. The people in charge of making products, How much experience they have?. The engineering team, How good is it?.

  • The user base: A large user base has its advantages. Every product release your competitors have more chances to dominate the market. They are in a better position to get press coverage and close deals with other companies.

  • Design and User Experience: How well designed is their product? Do they use the user experience as a differentiator?.

  • Brand: Learn how users perceive their brand. A strong brand is a huge competitive advantage. They can charge higher prices, get the benefit of doubt and have a higher level of customer loyalty.

  • Speed: If the company is small, they are more likely to move faster. Although is not always the case. How fast they can build and ship?.

Feature Table

The feature table is a comparison chart that allows to compare your product against competitors. Based on a list of dimensions you can learn how competitive your product is before launch.

On the X-axis put direct competitors. On the Y-axis put the features or characteristics you want to compare. If these doesn’t come to mind easily, you need to go back to research your customer group. Any tool will do the job.

Make sure your customers find your solution way better than the rest. You must know how your product differentiates. Also, pay close attention to the new features your competitors build and learn from them.


This is a first draft and a just a glance of what Competitive and Market Analysis is. Take the time to learn from the resources below. We keep them up to date!

Do you have any feedback? Please, let us know here.

Resources

“Bottom Up or Top Down Market Analysis: Which Should You Use?” by Jeff Haden 4 min read
“Market Size Estimation” by Michael Brown 7 min read
“The Lean Product Playbook” by Dan Olsen, Chapter 3