In the book Unlocking The Customer Value Chain, professor Thales Teixeira explains it as a framework of all the steps or activities that customers have to go through to acquire products and services. The customer value chain then helps to map the journey of our customers from their viewpoint.
Aspect
Explanation
1. Concept Overview
– The Customer Value Chain is a framework that focuses on understanding and optimizing the sequence of activities and interactions between a company and its customers to create and deliver value. It helps businesses identify opportunities to enhance customer satisfaction and loyalty.
2. Customer-Centric Focus
– At its core, the Customer Value Chain places the customer at the center of business operations. It recognizes that every activity and touchpoint should contribute to delivering value and meeting customer needs and expectations.
3. Value Creation Stages
– The Customer Value Chain typically comprises several stages: 1. Identification of Customer Needs: Understanding customer needs and preferences. 2. Product/Service Development: Creating offerings that address these needs. 3. Marketing and Promotion: Communicating the value of products/services to customers. 4. Sales and Distribution: Ensuring easy access to offerings. 5. Customer Support and Service: Providing assistance and addressing issues. 6. Feedback and Improvement: Gathering customer feedback for continuous improvement.
4. Mapping Customer Journeys
– An essential aspect of the Customer Value Chain is mapping the customer journey, which involves tracking and analyzing every interaction a customer has with a company, from initial awareness to post-purchase support. This helps identify pain points and opportunities for improvement.
5. Value Delivery
– Value is delivered at each stage of the chain by addressing customer needs and expectations. It is essential to ensure that the value proposition aligns with customer perceptions and desires.
6. Customer Lifetime Value
– A critical metric associated with the Customer Value Chain is Customer Lifetime Value (CLV). It quantifies the total value a customer is expected to bring to a business over their entire relationship. Optimizing CLV is a primary goal.
7. Cross-Functional Collaboration
– Effective implementation of the Customer Value Chain often requires cross-functional collaboration within a company. Departments such as marketing, sales, product development, and customer support must work together to ensure a seamless customer experience.
8. Data and Analytics
– Data plays a pivotal role in the Customer Value Chain. Companies gather and analyze data on customer behavior, preferences, and feedback to make informed decisions and refine their value proposition.
9. Continuous Improvement
– Businesses should continuously seek ways to improve the Customer Value Chain by refining processes, enhancing customer engagement, and adapting to changing customer preferences and market conditions.
10. Competitive Advantage
– A well-executed Customer Value Chain can provide a competitive advantage by fostering customer loyalty, reducing customer acquisition costs, and driving repeat business. It is a fundamental strategy for sustainable growth.
11. Industry Applications
– The Customer Value Chain concept is applicable across various industries, including retail, e-commerce, healthcare, hospitality, and technology. Companies in these sectors leverage the framework to enhance their customer relationships and maintain a competitive edge.
There used to be a time when the value chain was primarily intended as “the process or activities by which a company adds value to an article, including production, marketing, and the provision of after-sales service.” (source: Google)
While this is still a valid definition, if we change perspective and we look at it from the customer viewpoint, the value chain is “a conceptual idea that explains in a framework all of these steps or activities that customers have to go through in order to acquire products and services.” (Thales Teixeira in the FourWeekMBA interview)
This is one of the most valuable concepts to internalize if you’re launching or running a business in a market controlled by large tech players.
If they disrupted old players, there is always a step of the value chain that you can unlock.
Customer-centrism as a market force
Customer obsession goes beyond quantitative and qualitative data about customers, and it moves around customers’ feedback to gather valuable insights. Those insights start by the entrepreneur’s wandering process, driven by hunch, gut, intuition, curiosity, and a builder mindset. The product discovery moves around a building, reworking, experimenting, and iterating loop.
The penetration and maturity of the web favored those companies who could tap into customers’ wants and needs, to also to understand better than anyone else the products they wanted.
This focus on customers enabled companies to build competitive advantages by building valuable business models.
Where in the previous era, companies could gain a competitive advantage by optimizing business processes. In the new era, those companies that built value for customers could gain a lasting advantage.
From vertical integration to unbundling
Unbundling is a business process where a series of products or blocks inside a value chain are broken down to provide better value by removing the parts of the value chain that are less valuable to consumers and keep those that in a period in time consumers value the most.
A classic way for companies to build a lasting advantage in the previous era was the optimization of the supply chain and the integration of each step of it to produce products at a lower cost.
Until new players, primarily born in the web era (like Amazon) learned to break the value chain of dominating companies to build a whole new business model.
Key takeaways
Some key elements to take into account are:
A business model is about delivering value and capturing a portion of that value in the form of revenues and profits and figuring out who this value‘s captured from is very important.
The customer value chain is a conceptual idea that explains in a framework all of these steps or activities that customers have to go through in order to acquire products and services.
The web-shaped the business world with three waves: unbundling (breaking the product), disintermediation (breaking the supply chain), and decoupling (breaking the customers’ value chain).
Customer Value Chain Waves: From Bundling To Unbundling, back to Deintermediation and Re-intermediation
The customer value chain is the best place to start when it comes to identifying entry points incumbents’ weak spots.
When entering the market, as a startup you can use different approaches. Some of them can be based on the product, distribution, or value. A product approach takes existing alternatives and it offers only the most valuable part of that product. A distribution approach cuts out intermediaries from the market. A value approach offers only the most valuable part of the experience.
Disintermediation
Usually, a great place to start when it comes to redefining the customer value chain is disintermediation. Where you remove the middleman and enable direct access between consumers and manufacturers.
Disintermediation is the process in which intermediaries are removed from the supply chain, so that the middlemen who get cut out, make the market overall more accessible and transparent to the final customers. Therefore, in theory, the supply chain gets more efficient and, all in all, can produce products that customers want.
Reintermediation
Another way of redefining the customer value chain is by re-intermediating an industry, by replacing the middleman with another middleman, which perhaps is more effective in serving the customer.
Reintermediation consists of the process of introducing again an intermediary that had previously been cut out from the supply chain. Or perhaps by creating a new intermediary that once didn’t exist. Usually, as a market is redefined, old players get cut out, and new players within the supply chain are born as a result.
Decoupling
In a decoupling mode, instead, a startup can simply offer part of the product or service, which the user/consumer value the most. While avoiding carrying the cost associated with offering a “full product.”
According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the third wave (2006-still ongoing) where companies break apart the customer value chain to deliver part of the value, without bearing the costs to sustain the whole value chain.
Coupling
Coupling is a way for startups to move to adjacent areas as they create options to scale.
As startups gain control of new markets. They expand in adjacent areas in disparate and different industries by coupling the new activities to benefit customers. Thus, even though the adjunct activities might seem far from the core businessmodel, they are tied to the way customers experience the whole businessmodel.
Key Highlights
Customer Value Chain Framework: The customer value chain is a framework that outlines all the steps or activities customers go through to acquire products and services. It helps map the customer journey from their perspective.
Shifting Perspective: Traditionally, the value chain focused on how a company adds value to a product. However, looking at it from the customer viewpoint emphasizes understanding the steps customers take to acquire products and services.
Customer-Centric Approach: Customer obsession involves gathering insights from customers’ feedback and using entrepreneurial instincts to understand their needs and preferences. This approach led to the development of valuable business models by focusing on customers’ wants.
Advantage through Value Creation: In the digital era, building value for customers became more crucial than optimizing business processes. Companies that understood and fulfilled customer needs gained a lasting competitive advantage.
Unbundling in the Web Era: Unbundling involves breaking down a value chain into segments and providing value by focusing on the most valuable parts for consumers. This approach contrasts with traditional vertical integration.
Web-Era Waves: Unbundling, Disintermediation, Decoupling: The evolution of the business world in the digital era can be summarized through these waves. Unbundling breaks products, disintermediation removes middlemen, and decoupling offers specific value without carrying the full product cost.
Disintermediation: Removing intermediaries from the supply chain creates direct access between consumers and manufacturers, making the market more efficient and transparent.
Reintermediation: Replacing or introducing intermediaries can redefine industries and supply chains, often resulting in new players and services.
Decoupling: This approach involves offering a part of a product or service that consumers value the most while avoiding the costs associated with the entire value chain. Companies focus on delivering specific value without carrying the full product burden.
Coupling: Startups can expand into adjacent areas to scale by coupling new activities that benefit customers. These activities may seem unrelated but contribute to the overall customer experience.
Thales Teixeira’s Waves of Disruption: The three waves of disruption identified by Thales Teixeira are unbundling, disintermediation, and decoupling. These waves illustrate how companies have approached value creation and disruption in the digital era.
Related Concepts
Description
When to Apply
Customer Value Chain
The Customer Value Chain maps the journey a customer takes from initial awareness to post-purchase support. It identifies key touchpoints where value is created, delivered, and received, enabling businesses to enhance customer experience and satisfaction.
– Customer Journey Mapping: Visualize the customer’s path to identify value touchpoints. – Value Proposition Development: Tailor offerings to address customer needs at each stage. – Process Optimization: Streamline operations to deliver seamless experiences. – Customer Feedback: Gather insights to refine value chain components. – Competitive Differentiation: Identify areas for value enhancement to outperform competitors.
Value Proposition
The Value Proposition articulates the unique benefits and solutions a company offers to address customer needs and challenges. It aligns with different stages of the customer value chain, ensuring relevance and effectiveness throughout the customer journey.
– Segment-Specific Messaging: Tailor value propositions to resonate with diverse customer segments. – Product Development: Align features and benefits with identified customer pain points. – Sales Pitch: Communicate value effectively to prospects and customers. – Customer Retention: Reinforce value proposition to maintain loyalty and satisfaction. – Market Positioning: Differentiate offerings based on value delivered at each stage.
Customer Experience (CX)
Customer Experience (CX) encompasses all interactions a customer has with a company throughout the buyer’s journey. It integrates touchpoints across the customer value chain to create seamless, positive experiences that drive satisfaction, loyalty, and advocacy.
– Touchpoint Optimization: Enhance interactions at each stage of the value chain to improve overall CX. – Feedback Analysis: Use customer feedback to identify pain points and areas for improvement. – Training and Development: Equip employees to deliver exceptional experiences. – Personalization: Customize interactions based on individual preferences and behaviors. – Continuous Improvement: Iterate on CX strategies to adapt to evolving customer needs.
Supply Chain Management
Supply Chain Management focuses on optimizing the flow of goods and services from suppliers to customers. It intersects with the customer value chain by ensuring timely delivery, quality assurance, and responsiveness to customer demand, enhancing overall value delivery.
– Demand Forecasting: Anticipate customer needs to optimize inventory levels and minimize stockouts. – Logistics Optimization: Streamline transportation and distribution processes to expedite order fulfillment. – Quality Control: Implement measures to ensure product/service quality meets customer expectations. – Supplier Collaboration: Foster partnerships to enhance supply chain efficiency and responsiveness. – Reverse Logistics: Manage returns and exchanges efficiently to maintain customer satisfaction.
Service Blueprinting
Service Blueprinting visually maps the end-to-end service delivery process, including frontline interactions, backstage operations, and customer touchpoints. It aligns with the customer value chain to identify areas for improvement and innovation in service delivery.
– Process Analysis: Identify bottlenecks and inefficiencies in service delivery. – Employee Training: Align frontline staff responsibilities with customer needs and expectations. – Technology Integration: Implement digital solutions to enhance service efficiency and convenience. – Service Recovery: Develop protocols for handling service failures and customer complaints effectively. – Innovation Initiatives: Explore opportunities to introduce new services or features based on customer insights and feedback.
Customer Relationship Management (CRM)
Customer Relationship Management (CRM) systems track and manage interactions with customers across various touchpoints. They support the customer value chain by centralizing customer data, facilitating personalized communication, and nurturing long-term relationships.
– Data Consolidation: Integrate customer data from multiple sources to gain a holistic view of the customer journey. – Communication Automation: Use CRM tools to automate personalized messaging and outreach. – Customer Segmentation: Segment customer base to deliver targeted marketing campaigns and offers. – Feedback Integration: Capture customer feedback within CRM systems to inform relationship-building strategies. – Performance Analytics: Analyze CRM data to measure customer engagement, satisfaction, and retention metrics.
Product Lifecycle Management (PLM)
Product Lifecycle Management (PLM) oversees product development from conception to retirement. It aligns with the customer value chain by ensuring products meet evolving customer needs, preferences, and expectations at every stage of their lifecycle.
– Market Research: Gather customer insights to inform product design and development decisions. – Iterative Prototyping: Solicit feedback from customers to refine product features and functionalities. – Launch Planning: Develop marketing strategies that resonate with target customers and address pain points. – Post-launch Support: Monitor product performance and gather user feedback for continuous improvement. – End-of-life Management: Plan for product retirement and replacement to maintain customer satisfaction and loyalty.
Digital Transformation
Digital Transformation involves leveraging digital technologies to reimagine business processes, enhance customer interactions, and drive innovation. It intersects with the customer value chain by digitizing touchpoints, automating workflows, and delivering personalized experiences.
– Digital Touchpoint Optimization: Enhance online and mobile interfaces for seamless customer interactions. – Process Automation: Implement digital workflows to streamline service delivery and reduce response times. – Data Analytics: Leverage customer data to personalize experiences and anticipate needs. – Innovation Enablement: Use digital tools to rapidly prototype and test new products and services. – Customer Engagement Platforms: Deploy omnichannel platforms for consistent and integrated customer experiences.
Brand Management
Brand Management involves shaping perceptions and associations around a brand to create value and drive preference among customers. It aligns with the customer value chain by ensuring brand messaging, positioning, and promises resonate throughout the customer journey.
– Brand Messaging: Develop compelling narratives that communicate brand values and benefits to customers. – Brand Consistency: Ensure brand elements and messaging are consistent across all touchpoints. – Brand Monitoring: Track brand sentiment and perception to identify areas for improvement. – Brand Loyalty Programs: Implement initiatives to reward and incentivize repeat purchases and advocacy. – Crisis Management: Protect brand reputation and integrity during challenging situations or controversies.
Customer Success Management
Customer Success Management focuses on maximizing the value customers derive from products or services. It aligns with the customer value chain by proactively engaging customers, driving adoption, and fostering long-term loyalty and satisfaction.
– Onboarding Programs: Guide customers through the initial setup and usage of products or services. – Lifecycle Touchpoints: Regularly check in with customers to assess satisfaction and address concerns. – Training and Enablement: Provide resources and training to help customers optimize product usage and outcomes. – Renewal Strategies: Develop strategies to retain and renew customer subscriptions or contracts. – Advocacy Initiatives: Cultivate relationships with satisfied customers to generate referrals and testimonials.
Business modelinnovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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