Identifying Market Opportunities: Here’s How You Can Create, Measure and Monetize Customer Value

Creating value is an essential starting point and a fundamental concept for all businesses and their objectives. It’s as simple as this: a business must create value and deliver it in an efficient way so that it will generate profit after cost. But how exactly do you create, measure and monetize this value? Finding market opportunities, choosing a revenue model and delivering value to customers are all fundamental steps to reaching your product goals.

Steps to Creating, Measuring and Monetizing Customer Value

1. Find Market Opportunities

To begin, it is important to find a market opportunity that has big enough potential. Identify the gaps in the market and understand which needs aren’t being met. You want to find the right problem to solve and validate your idea. To do so, talk to the people in your targeted market and take Clayton Christensen’s jobs-to-be-done (JTBD) approach. Customers don’t simply buy products, they hire products to get a specific job done. You are essentially answering this question: "How might we help a certain type of customer get X job done?"

By better understanding the jobs-to-be-done and knowing which alternative solutions people are currently using, you can create an innovative solution to their problems. Communicate with the consumers and ask how they know they have that specific need. In doing these interviews and engaging in customer conversations, patterns will emerge which will represent market gaps. Once you understand how your product idea can more effectively solve problems better than the existing alternative solutions, you can position your product with a unique value proposition.

2. Create and Measure Value

Your value proposition represents how you create value to potential customers. There are many different ways of creating value, like sharing a taxi or going out of your way to help a friend. However, not all value is equal and some types of value creation are more useful than others.

When creating value you must ask yourself: "Do customers have a wide variety of other options?" "Is my product/service distinct from competitors?" "Is my product/service easily substitutable?" "Is my product/service solving a unique problem for consumers?" You have to find your competitive advantage and prove to customers that your business can do something others cannot. In solving a bigger problem, you create more value.

3. Monetization: Choose a Revenue Model

Revenue is known as the measure of value creation. When a customer makes a purchase, they perceive the product as valuable. This is also known as the perceived use value, which is defined by the customers and how they perceive the usefulness of your product. The monetary value is the price the customer is prepared and willing to pay for your product or service.

One of the next steps to creating and monetizing customer value is picking from the many different revenue models (such as ad-based, subscription and freemium options). According to Montreal’s Founder Institute, the following are among the top revenue models for startups and businesses.

  • Ad-based: Creating ads for a specific website, service, app, product etc. and putting them on high traffic channels online.
  • Transactional: This is one of the most direct and simple ways of generating revenue. Your company provides a product or service and customers pay for it.
  • Subscription: Offering a product or service that customers pay for over a period of time (for example: monthly or year-to-year).
  • Web sales: Customers conduct transactions over the internet.
  • Direct sales: This can be inside sales where someone is calling-in to place an order. Or it can be outside sales where sales agents call potential customers (this model usually requires a sales team).
  • Retail sales: Setting up a traditional retail store to sell your products to customers. Or you can pay for shelf space at existing stores.
  • Freemium: A company offers its basic services for free but users must pay for additional premium features and functions (example: platforms like Spotify and LinkedIn offer both free/basic and premium services).

4. Deliver Value to Customers and Generate Revenue for the Business

As we have mentioned before, not all value is created equal. Therefore, not all features will provide value and generate revenue. Businesses have limited resources at their disposal. This is why they must be used to build and deliver the most valuable features for customers and ultimately lead to the increase of revenue for the company. To do so, it is crucial to consider both the customer perceived value and the customers’ willingness-to-pay (WTP) when deciding to build the next big feature.

For instance, you can propose 5 different product initiatives to the executive and the team and present why each option is valuable. Due to the limited resources that are available (such as constraints on time, people and money), they must pick between 2-3 intermissions. As part of the decision framework and to help guide the team in their selection, you present and compare the perceived values and WTP associated with each intermission/feature.

Before building any feature you must think:

  • Are we building features the customers will actually need?
  • Are we maximizing revenue and developing a product pricing strategy?
  • Are we helping the team make product decisions and gaining buy-in from executives?

The following diagram illustrates the different types of low and high value features which can be incorporated along with their levels of willingness-to-pay:

As you combine each of these steps together, you will be on a positive path to creating, measuring, monetizing and delivering customer value, reaching your product goals and generating revenue for the business.

To finish off this article, the following is a quotation written by Jack Hughes in the Harvard Business Review in an article about What Value Creation Will Look Like in the Future, where he illustrates and combines the powerful concepts of value and creativity.

"The value of products and services today is based more and more on creativity — the innovative ways that they take advantage of new materials, technologies, and processes. Value creation in the past was a function of economies of industrial scale: mass production and the high efficiency of repeatable tasks. Value creation in the future will be based on economies of creativity: mass customization and the high value of bringing a new product or service improvement to market; the ability to find a solution to a vexing customer problem; or, the way a new product or service is sold and delivered."

Additional Information

The following are definitions of the terms from the diagram illustrating perceived values and willingness-to-pay for different types of features:

  • Add-On: These are add-on features customers can purchase. They are at a lower value because not everyone is interested in buying them but some customers are willing to pay highly for these options.
  • Differentiable Features: These are features aligned with different pricing tiers (each pricing tier can have different features).
  • Trash Land: Customers think little of these features or they don’t care much about them (example: adding a passcode feature to access an app).
  • Core Features: These are the basic features (which are available even at the lowest pricing tiers) customers have come to expect from your product or service.

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About Bain Public

Bain Public, acquired by X Machina-AI Inc. in January 2022, offers consistent roadmap planning processes & tools for business leaders and product managers organized around what motivates, inspires and improves growth. Bain Public offers a variety of articles, e-books and approaches designed to help organizations understand their digital strategies, introduce elements of roadmapping and establish product-led change amongst the senior leaders and managers. Our approach, product, expert advice and coaching helps entangle complex technology, people and roadmap dynamics.

About XMachina

X Machina-AI seeks to provide a platform for the acquisition of Artificial Intelligence ("AI") entities in North America. The company’s thesis is based on an aggregation strategy to acquire successful AI targets and make them better through the addition of growth capital, streamlining of corporate processes and human capital acquisitions. The current sector focus of the Company is on enhancing supply-chain efficiencies, logistics and manufacturing.