7 Steps to Identifying and Validating Market Problems

Market ProblemsThis week, we kick off our series of blog posts focused on showing how win loss analysis can help you become an expert on your market and gain a deeper understanding of the problems inherent in your target markets. Pragmatic Marketing teaches that the Market Problems activity is the cornerstone of their framework, defining this activity as discovering problems in the market by interviewing customers, recent evaluators, and untapped potential customers, as well as validating the problems identified to show their pervasiveness and impact on your market.

New product failure rates are high. Studies indicate that we can see new product failure rates of nearly 90 percent. A study done in the food industry showed that the failure rate for new products was between 70 and 80 percent, but that the U.S. Top 20 food companies were enjoying a success rate of 76 percent for their new product introductions, while the other 20,000 food companies had only an 11.6 percent success rate for their new products. The biggest difference between the top 20 and the bottom 20,000? The lack of market research.

A CNBC profile of 3M also showed that a third or more of the company’s revenue is likely derived from products that did not exist five years ago. There is no question that if a company is to grow and survive, they have to be able to create and launch new products, or at the very least enhance and upgrade their existing products. Take a look at Motorola, a company that led the cell phone industry. At its peak in 2000, Motorola had a market cap that was 8 times larger than their market cap today. Motorola has been struggling for the last couple of years; in fact, their last new cell phone product launch was in 2004. The market has changed tremendously over the last five years, and given the current state of the company, it’s pretty safe to say that they haven’t been listening to their markets.

I just realized I used the word product nine times in the preceding two paragraphs to describe the landscape that is product development, management, and marketing. The truth is, it isn’t about products. People don’t buy products; they buy solutions to their problems. In The Business Battlecard, author Paul ODea quotes Harvard Marketing Professor Theodore Levitt to illustrate the importance of understanding your customer’s pain:

People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.

If we want to create value for our customers, ensure our product’s success, and secure our company’s future, we have to understand our customer’s needs and problems better than our competitors. There is really only one way to do that: we have to talk to our market, and more specifically, the decision makers in our target markets.

Based on the new product failure rates that I quoted earlier, we can assume that most product development and management is done using activities performed inside the company; i.e. founders and executives drive product development based on their experience and gut, while occasionally checking in with customers. This is typically the place where everyone has to start when we are creating a new product, but at some point (the earlier the better), the process needs to change from an internally-driven development process to a customer-driven, external process.

Listen to Understand Market ProblemsIn order to create a customer-driven product development process, we must be consistently listening to our market to identify and validate the key customer problems that our solution will solve and measure how well our solution is solving those problems. Pragmatic Marketing defines three groups within our target markets that we need to be actively listening to:

  1. Existing Customers: this group includes customers that recognized they had a problem and purchased your solution to solve that problem
  2. Evaluators: this group includes both your customers (competitive wins) and those customers that have selected your competition (competitive losses)
  3. Potentials: the group of potential customers that haven’t purchased your type of product, but have tried to solve the same problems through internal efforts

Over the last decade, we here at Primary Intelligence have spent countless hours figuring out how to best listen to the second group identified by Pragmatic Marketing: the Evaluators. Based on that experience, we have found the following seven-step process is an effective methodology for improving your understanding of your market’s problems:

  1. Make sure you are asking questions that will reveal the problems the customer is trying to solve.
  2. Before you begin gathering and evaluating our win loss data, write down your target markets three to five most important or pressing problems.
  3. Examine demographic information for the recent wins and losses you are going to interview in order to make sure they are in your target markets (you don’t want to identify market problems for markets that you don’t want to be in).
  4. Perform the win loss analysis and gather the data.
  5. Build a repository of the problems identified and validated.
  6. Analyze the data to identify problems you may have missed. You also want to validate that the problems you wrote down are real for your markets and not problems that you hope they have.
  7. Remember that identifying market problems and validating those problems is a program and not a project. You want to build this process into your weekly/monthly activities to make sure that you are able to stay on top of your markets

STEP ONE: Ask the Right Questions

Make sure that you have your questions prepared before you perform the interview with the decision maker. It will be tempting to just pick up the phone and wing it, but being prepared with the questions you want to get answered before-hand will dramatically improve the probability that you will accomplish your objectives.

Based on our experience, we have found that you need to ask the following questions to both identify and validate market problems:

  1. What were your business needs that prompted this evaluation?
  2. What were the primary reasons you selected the winning vendor over the other vendors you evaluated?
  3. What were the primary reasons you did not select the other vendors you evaluated?
  4. What could the vendors you didn’t select have done differently to win your business?
  5. What could the winning vendor have done differently to better meet your business needs?
  6. What did you value most about the vendors solutions you evaluated?
  7. What were the biggest solution weaknesses you identified based on your business requirements?
  8. What important features were missing from the solution?

There are also several quantitative questions that will help you validate market problems and quantify how well your solution is solving those problems, but I’ll need to save that for a follow-up discussion to try to keep the length of this post down.

The first question (what were your business needs that prompted this evaluation?) is your money question when it comes to identifying and understanding your target markets problems. In our experience, the other questions will also identify and validate your customer’s problems. They won’t do it consistently, but they will regularly give you insight into what’s important to your customers and why. All of this translates into how well you’re solving your customer’s problems and helps you along the path of becoming stronger experts on your target markets.

STEP TWO: Write Down Your Target Market’s Problems

An important part of this ongoing process is validating what you currently think about customers’ problems as well as qualifying the impact those problems are having on customers: how important is it to our customers to solve these problems?

An interesting exercise that you can do in conjunction with this is to send an e-mail out to others in your organization (sales, operations, executives, etc.) and ask them what they believe the top three problems are that you solve for your customers, and ask them to rank them in order of importance to the customer.

In preparation for this article, I reached out to our sales, operations, and executive personnel and asked them to identify the top three problems we solve for our customers. I asked them to rank them from most important problem to least important problem. I then took the responses and weighted them to come up with the following list of problems our organization believes we solve for our customers:

Top Three Problems We Solve

According to Us
Weighted Importance
Better Competitive Intelligence 41
Understanding why they win and lose 30
Sales Process (SWOT) 24
Better understand target market needs 14
Understanding market perceptions 11
Improve sales performance and win rates 8
Product (SWOT) 7
Marketing program and messaging effectiveness 7
Identify previously unknown areas of improvement 4
Non-biased win loss analysis & expertise 4
Identify sales best practices 4
Better understand buying process 4
What happened in this deal? 3
Disseminate W/L intelligence throughout organization 3
Identify sales training opportunities 3
Understand pricing impact on decisions 3


You will notice that the list above isn’t necessarily organized as problem statements. However, organizing things in this way allows us to figure out which category of problems are most important to our target markets. This is perfectly acceptable, as long as you have a deep understanding of the problems your customers are facing and you’re able to articulate them using the same words your customers use. The trap that you have to be careful of here is taking a short-cut and falling back onto your benefit statements instead of really dissecting the problems as articulated by decision makers in your target markets.

For example, when one of our decision makers was asked what business problem they were trying to solve when they selected our solution, he responded, We need to gain specific competitive insight on [One of their competitors]. They have been beating us with greater frequency and we need to figure out how to counter this. We can see that this is clearly a Better Competitive Intelligence category problem. In contrast, the following response really belongs in the Better understand target market needs problem category:

We need to get to a more refined understanding of our markets so we can figure out why there is a gap between what we think customers should be spending and what they actually are–we need to find out why this delta exists and use this information to make changes to our go-to market strategies, our product plans and perhaps even our business model.

According to this internally-derived list, the top three problems that I should be looking to validate, in addition to trying to identify new problems, are Competitive Intelligence-related problems, helping customers understand why they win and lose, and helping customers understand the strengths, weaknesses, opportunities, and threats in their current sales process (Sales Process SWOT).

STEP THREE: Select Recent Wins and Losses to Review and Qualify Demographics

You want to examine the key demographic information of your recent wins and losses to make sure that they fit within your target markets. The best sales professionals and managers will tell you that there really are only two reasons you lose a deal (versus the more commonly voiced, but generally incorrect, reasons of price and product):

  1. You shouldn’t have been in the deal in the first place (your solution wasn’t a good fit based on the customer’s needs)
  2. You were outsold; the competition did a better job selling than you did.

Because walking away from any deal is a very difficult thing to do for a sales representative trying to make quota, you will have losses in your database that are not in your target markets. It is very important that you do your best to remove these from the list of competitive wins and losses you will be using to perform your win loss analysis.

STEP FOUR: Interview Decision Makers

To help with best practices when interviewing decision makers, I went to our team of account consultants, the folks that spend at least half of every day talking to decision makers, and asked them for advice they would give. They provided both some best practice dos and don’ts that will help you improve your interviews and response rates:

Do these things:

  1. Notify the responsible sales representative that you will be doing a win loss review on the deal.
  2. Let the sales representative know that you will share the results of the review with them so that they can learn from the effort as well.
  3. Ask the sales representative to notify the decision maker that you will be calling to do a debrief on how they made their purchase decision; this will improve response rates significantly. Its important that you craft an e-mail message for the sales representative to send to the decision maker that emphasizes the following:
    1. You are not calling to try to win them back, or re-engage the selling process (this applies to your losses).
    2. You are calling to get their feedback so that you can improve your solution and sales processes.
    3. You are in product management and not sales.
  4. Listen. Listen. Then listen some more. There are really only three situations where you should be talking:
    1. You’re asking the interview questions.
    2. You’re asking a follow-up question.
    3. You’re answering a question about one of the questions you just asked.
  5. Keep the interview conversational; don’t sound like a call center survey.
  6. Always know their title, correct spelling of their name and gender prior to the call. Only verify information with them (e.g. I have your title as CFO. Is that the most accurate title?)
  7. Make sure you have follow-up, or delving, questions prepared beforehand for each of your questions so that you can get actionable feedback
  8. Smile while you interview; it comes through in your voice
  9. Thank them for providing candid and informative feedback, especially when the feedback might be considered negative for you, at appropriate times in the interview; this will encourage them to continue to provide candid feedback.

Don’t do these things:

  1. Don’t go into the interview with a predisposed view of what happened in the deal.
  2. Don’t lead person you are interviewing, or ask leading questions. For instance, don’t ask “Did you reject the solution because the price was too expensive for you? Instead, ask something like, Why did you not select the solution?
  3. Never assume that you know the answer to a question because of their responses to previous questions.
  4. Don’t interrupt. This will be a challenge because they will say something that you can answer, and you will want to jump in and respond to what they just said, but if you do, you will miss out on critical information.
  5. Don’t frustrate them with an overly long interview; keep your interview as succinct as you can and be mindful of their time constraints.
  6. Don’t try to solve all of your problems in one interview.
  7. Don’t add your own opinion or additional commentary to their responses.

STEP FIVE: Build a Repository

While individual win reports or loss reports are very important to understanding your target market’s problems and how well your solution addresses those problems, having a database that you build over time will allow you to validate these problems and identify important trends in the market problems that your solution addresses.

When trending or aggregating information from a group of interviews, keep the following in mind:

  1. Try to maintain the integrity of your markets. If you are interested in more than one target market, try to separate your interviews into groups that each fit a single target market and do a trend analysis for each group.
  2. When trending, having an equal mix of win reports and loss reports will help avoid positive or negative bias in your overall findings. Being able to see how performance differs between wins and losses will also help pinpoint areas of greatest impact.
  3. Remember that certain questions work better for determine overall performance (e.g. performance ratings) and some are more individual-based, making them better for identifying a range of best practices (e.g. an open-ended question asking how the vendor could better serve the customer’s needs).

STEP SIX: Analyze Stated Customer Problems

Once you have a database set up, you can get to the fun part: figuring out what problems are most important to your target markets and how your solution can help them solve those problems. To help illustrate this, I analyzed ten recent opportunities that evaluated Primary Intelligence (6 wins and 4 losses) to identify the market problems that caused them to seek a solution. The results are very interesting, especially when you compare them with our internally-derived list of customer problems that we solve:

Top Three Problems We Solve

According to Our Evaluators
Weighted Importance
Better Competitive Intelligence 13
Improve current win loss program 12
Non-biased win loss analysis & expertise 10
Understanding why they win and lose 10
Product (SWOT) 5
Sales Process (SWOT) 4
Better understand target market needs 3
Understanding market perceptions 3
Marketing program and messaging effectiveness 1
Disseminate W/L intelligence throughout organization 1
Improve sales performance and win rates 0
Identify previously unknown areas of improvement 0
Identify sales best practices 0
Better understand buying process 0
What happened in this deal? 0
Identify sales training opportunities 0
Understand pricing impact on decisions 0

Keep in mind that this is only ten recent opportunities; however, we can immediately see that we missed an important market problem from our internal list: evaluators indicated that improving their current win loss program was one of the most important problems that was driving them to look at our solution.

Identifying and ValidatingThis process allows me to understand the big picture for our target markets, and analyzing the way each customer communicates their problems gives me fantastic insight into areas that we can/should be focusing on to better meet the needs of our customers. It is comments like the following that help me frame the newly identified customer problem of improving a current win loss analysis program:

“We were doing our own loss reviews, and we were finding that we were not getting good, actionable information from them. Then we found out that Primary Intelligence’s services were available and saw that the level of information was much deeper than we were able to get by doing our own loss reviews. We felt doing our own reviews internally wasn’t as deep because it wasn’t our area of expertise.”

“We were trying to gain a more robust process. We were strapped for resources in-house and we were looking for a solution that would allow us to be able to touch more deals than we currently touch, and therefore get a bigger wealth of information as to why we are winning and losing. We have an internal process, but we think we are getting rote answers. We had not gone with a third party ever before.”

We can see that while they definitely want to improve their current win loss analysis programs, our customers are framing this problem around the idea of deeper information, actionable information, wealth of information, etc. These, then, are the real problems underlying the stated problem of improving their current win loss programs.

Analyzing the data in this way helps me understand the problems and their impact, but just as important is the fact that I’m able to get a good feel for which problems are most important to our target markets; that is, which problems are the ones our customers are willing to pay to solve.

The importance ranking that we did internally was quite a bit different than what actually resulted from listening to evaluators, as you can see when we look at the top ten problems side-by-side:

Top Three Problems We Solve

Evaluator Ranking vs. Internal Ranking
Evaluator Ranking Internal Ranking
Better Competitive Intelligence 1st 1st
Improve current win loss program 2nd
Non-biased win loss analysis & expertise 3rd 10th
Understanding why they win and lose 4th 2nd
Product (SWOT) 5th 7th
Sales Process (SWOT) 6th 3rd
Better understand target market needs 7th 4th
Understanding market perceptions 8th 5th
Marketing program and messaging effectiveness 9th 8th
Disseminate W/L intelligence throughout organization 10th 14th

STEP SEVEN: Make Market Problem Identification and Validation a Habit

Remember that win loss analysis isn’t a project; it’s a program. Your recent evaluators are one of the best places (if not the best place) you can go to validate the problems you believe you are solving with your solution.

The things that influence and drive your target markets are fluid and always changing. If there is one constant that we have seen analyzing purchase decisions over the last ten years, it is that markets will change. The problems that you are solving today, while important, may not be the most important problems your customers need you to solve tomorrow. If you are not listening, you can bet one of your competitors will be.

CLICK here to download and share 5 Steps to Identifying and Validating Market Problems eBook.

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