Product Discovery: Key Stages, Benefits, and Techniques

The discovery process can be applied to both project and product development, which are two different philosophies. If you want to learn about project discovery, read this article.

And now, let’s dive into product discovery.

What’s product discovery?

Product discovery is a key part of the product development process that allows you to validate ideas, gain user insights, and improve the product with the most valuable features. It ultimately helps product teams reduce financial risks and boost overall revenue.

Let’s break down the two main use cases of product discovery.

Product discovery with a specific vision in mind

Let’s imagine a scenario. You have a profitable app with an active user base, but every 10th client refuses to pay money because your product is missing one specific feature. By adding this new feature, you could address key pain points and increase the revenue by up to 30%. You can validate this hypothesis through product discovery.

Start by looking at unit economics, such as the customer acquisition cost, to find out which of the metrics will be improved by adding new functionality. Calculate the potential growth for these key metrics and estimate how long development will take. By the end, you’ll be able to predict how much money you’ll earn by including the feature.

⭐ Our experience   Once, we helped a client save almost $40,000 through product discovery, which included user research, calculating unit economics, and performing in-depth customer interviews. This process helped us identify the most lucrative audience segment, which made it easier to plan out the app’s feature scope. To illustrate our findings, we created detailed graphs for key interview results. After reviewing them, the client decided to make a Minimum Viable Product with us.

Product discovery without a defined task

What if you want to boost the product’s revenue but don’t know where to start? In this scenario, the product discovery framework will help you set achievable goals and adapt the product to the needs of your audience.

This process begins with strategy meetings, during which you and your team will set the most important goals for your product and discuss the key obstacles. Then, you’ll need to segment your customer base into 5 different categories according to the ABCDX framework.

Segment A consists of customers who have a strong demand for the product and bring in significant revenue. 

Segment B also values the product and generates a large chunk of profits, but aren’t fully satisfied with the functionality. Clients in Segment C don’t bring in as much revenue, and their demand for the product isn’t as high.

Segment D is the least lucrative one: it consists of customers who generate the lowest profit and have a lot of concerns or demands, often making them hard to work with. Segment X is the most profitable: it includes customers who bring in the most money and use the product the longest but have unique, often complex, needs.

X segment is the most valuable, and consists of the highest-paying customers. With this approach, you’ll be able to tailor your product to the specific needs of the X customer segment and, as a result, increase the total revenue. Product discovery will also help your team prioritize the most important tasks, reducing the risk of inefficient spending.

Next, let’s break down the two main scenarios of conducting product discovery. We’ll start with performing product discovery from scratch without a defined vision in mind.

How to conduct product discovery from scratch

First, here’s a handy scheme breaking down the two main scenarios of product discovery phases that we mentioned earlier.

And now, let’s move on to our detailed breakdown. Here are the 6 steps you’ll need to take when performing product discovery from scratch.

1. Set a goal

In the beginning, it’s crucial to set a clear goal for the discovery process, as this will help ensure successful product delivery. This goal should be measurable, achievable, and linked to key business metrics.

To set a goal, we recommend doing strategic sessions with the product team, which help develop the most efficient approach to product discovery and assign responsibilities. These meetings should involve key members of every team working on your app, such as product managers, marketing experts, business analysts, and developers.

At the start of the session, clearly outline the problem that needs to be addressed. To do this, try using the 5 “whys” technique: ask yourself a specific question regarding a key problem. Then, take the answer and ask: “Why?” Doing that 5 times will help you drill down to the core of the issue and find an optimal solution.

By the end of these sessions, you should have a complete product roadmap, which outlines the problem, the desired goal, and every key task that must be accomplished to reach it. Key responsibilities should also be clearly defined to avoid confusion within the product team.

2. Segment the customer base and find the X segment through JTBD interviews

After you’ve set a goal, start dividing your user base into segments based on how much profit they generate. This process is crucial since it allows you to find out which customers to target with your product in order to increase the overall revenue.

To create customer segments, use the ABCDX model, which consists of 5 segments. Conduct JTBD (Jobs to Be Done) interviews with your clients, then sort them into segments based on the total revenue generated from each segment. For the most accurate results, it’s best to arrange around 25 interviews. The segmentation process usually takes from 1.5 to 2 months.

The A segment is the least profitable, while the X segment is the most lucrative. It consists of the highest paying clients, who are willing to spend a lot on your product if it addresses their needs. By tailoring your product to their needs, you will make your business indispensable for them, which means one thing — they’ll be glad to give you more money for convenience.

⭐ Our experience   A client from the US once asked us to validate their idea for an AI dating app. They wanted to combine machine learning with standard online dating features. We conducted JTBD interviews with the app’s target audience, analyzed the results, and calculated unit economics. In the end, we recommended three options for product development. Through product discovery, we discovered there wasn’t enough demand for the client’s idea. And we offered them 3 paths they could take to move forward with their product.

3. Analyze clients from the X segment and categorize them

Next, go through the segmentation process again, but this time focus just on the clients in the X segment, sorting them based on profitability. This will help you target the highest-paying customers, even within the most lucrative category. Then, you’ll be able to find out their key pain points, letting you adapt the product to their needs and increase the potential return on investment.

4. Conduct a second round of interviews with the X segment to identify additional pain points

After you’ve found out who your most paying customers are, conduct an additional round of JTBD interviews with them. This will let you identify additional needs that could have been overlooked during the initial set of interviews. The goal here is to maximize the return on investment by solving every possible problem of your highest paying customers. The more of their pain points you’ll be able to address, the higher your revenue will be.

5. Calculate unit economics

Now, it’s time to look at the numbers to find out how much revenue can be generated by the new feature you’ve chosen. That means calculating the unit economics — figuring out how much it costs to develop the functionality compared to how much profit it can bring in.

Look at the key business metrics, such as the customer acquisition cost, customer lifetime value, churn rate, and average revenue per user. These metrics should be enhanced by introducing a new feature that will make your business more profitable.

Based on them, calculate the potential ROI. To avoid surprises, account for both the optimistic and pessimistic scenarios. Here’s an example — in the best-case scenario, we hypothesize that the new feature will increase conversions by 10%, which will boost the total revenue by 30%. And in the worst-case scenario, the conversions will only rise by 2%, increasing the revenue by 6%. Accounting for both possibilities helps product teams improve their chances of success.

6. Define the next steps based on ROI

Using the results of your calculations, you’ll be able to make an informed decision on what to do next. If the initial hypothesis is validated and the numbers prove its viability, you can proceed with the initial plan and implement the chosen feature.

And if the ROI isn’t as high as you’d hoped at first, you’ll be able to rethink your approach. It’s always better to come up with a new idea to validate instead of spending the entire budget on a risky development project.

Product discovery process: validating a specific idea

The product discovery process will be different if you already have a feature idea in mind. Here’s what you need to do in this case:

1. Form the initial idea

First, you’ll need to form the initial idea you’ll be validating during product discovery. Start by pinpointing a problem. For example, it could be decreasing sales or low user retention. Then, think about how you can improve the product and solve the issue.

Consider the key pain points of your audience and create an initial hypothesis on how to address them by introducing a new feature. Try to answer questions such as:

• • “How exactly will this feature be helpful to users?”
  • “Which metrics will be improved by adding this feature?”

2. Evaluate profitability using the product metric tree framework

After you’ve come up with an initial hypothesis, start validating it by looking at specific business metrics. The goal here is to find out how the feature you’ll be adding will influence sales, user retention, conversions, or any other relevant metric that you’ve chosen. Ultimately, you’ll need to determine if including the feature makes financial sense.

To obtain the most accurate data, we recommend using the product metric tree framework.

It’s a schematic representation of business components that helps product teams align their actions with the overall goals. It should include the problem, relevant metrics, and solutions to address the issue. For example, if the problem is low user engagement, it makes sense to prioritize metrics like daily active users, returning users, and session length.

⭐ Our experience   Taxi apps like Uber are very profitable. One of our clients suggested a web platform where users could plan cab trips with specific drivers. They asked us to validate their hypothesis through quantitative and qualitative research. After finishing it, we concluded that the client’s business model was financially viable. Based on our predictions, the app would generate $7,900 just in the first month. During our analysis, we even found out that many users were willing to pay extra for this taxi service. This was further confirmed when we calculated the unit economics.

3. Calculate unit economics

Next, you’ll need to analyze the unit economics to prove that your idea is profitable. Like with the first product discovery scenario, implementing a feature wouldn’t make sense if the development cost outweighs the potential ROI.

Look at metrics like customer lifetime value to determine how much money the feature will generate versus how much it costs to develop. Also, consider how expensive this functionality will be to maintain in the long run. Then, calculate the potential ROI for both optimistic and pessimistic scenarios to reduce financial risks and set realistic expectations.

4. Define the next steps based on ROI

Just as with the first product discovery scenario, the last stage involves outlining the future course of action based on your findings. Compare the development cost of a feature to the potential ROI that you calculated in the previous step. By doing this, you’ll find out if it’s worth spending money on the chosen functionality or if it’s better to go back to the drawing board and come up with another idea.

Best techniques for product discovery

Product discovery can involve several key techniques, and for best results, we recommend combining them. Here are the most useful workflows for performing product discovery:

Technique	Purpose
Market research	Study the product niche, target audience, and competitive landscape to come up with new ideas. Understanding the market will let you pinpoint lucrative niches, identify trends, and correct the mistakes of your competitors. Gather actionable customer feedback through user interviews and surveys.
Product analytics	Analyze user behavior patterns, engagement rates, and other key metrics to boost the product’s value and plan new features. Do this using tools like Google Analytics and Mixpanel, which include informative dashboards showing important trends and forecasts.
Customer interviews	Gather insights from real users to define the overall goal of product discovery and highlight additional pain points. Direct customer feedback will help you find out which features need to be added or improved.
The 5 “whys” technique	Find out the underlying cause of a problem by posing a specific question. Then, take the answer and ask, “Why?”, using the answer to the first “Why?”, you’ll ask the same question again. Repeat it 5 times. This will help you get to the root of the issue, allowing you to come up with an effective solution.
Usability testing	Analyzing how your audience interacts with the product to pinpoint areas for improvement. Record the test sessions to see which UI elements confuse the user or cause friction. The results of usability tests can help you refine the product’s design and improve the UX.
Feature prioritization	Identifying new features to add that can bring the most profit. To prioritize the right features, use the data obtained through interviews, analytics, and usability tests. This process will allow your team to spend resources more efficiently and address your customers’ pain points.

The advantages of product discovery

Product discovery plays a key role in improving an app over the long term, making it relevant for years to come. Here are the most important benefits of performing product discovery.

Efficient budget spending

By conducting product discovery, you can define and prioritize features that can generate the most revenue. During the research and testing process, your product team will find out which new functionality users would like to see in the app. They will be able to get actionable data and implement only those features that make financial sense, lowering the risk of inefficient spending.

Increased revenue

A well-performed product discovery usually leads to a high return on investment. You’ll be able to validate ideas and pinpoint key issues preventing your product from making more money. This process will also allow you to target your product to the most lucrative segment of your audience, leading to higher long-term profits.

⭐ Our experience   Product discovery comes in many forms. For example, a client once asked us to perform a UI/UX audit to improve conversions in their app. We analyzed the interface and looked at how we could streamline navigation on the platform. It only took us one month to deliver a brand-new UI/UX design concept that aligned with the expectations of modern audiences. The initial app design was a bit outdated, so we created a modern look for the platform to help it attract more users.

Reduced risks

Product discovery involves diving into the details: performing customer research, calculating the unit economics, and focusing on the users’ problems above all else.

This thorough preparation helps ensure a high product-market fit ratio, meaning your app will better align with your audience’s needs. The discovery process will allow you to add only the lucrative features, reducing financial risks and ensuring a successful product delivery.

In conclusion

Today, we’ve covered a lot of ground, breaking down the two main approaches to product discovery, exploring its benefits, and recommending the most useful techniques.

➡️We can help you with product discovery, no matter how ambitious your project is — whether you’re looking to validate a specific idea or start the process from scratch. Tell us about your product in the form below, and we’ll respond to you within 24 hours.