customer-value-chain

What Is The Customer Value Chain And Why It Matters

Business / By / December 9, 2021

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.

Why the customer value chain matters

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
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
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.

entry-strategies-startups
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
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
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.”

decoupling
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.

coupling
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 business model, they are tied to the way customers experience the whole business model.

More Business Frameworks

Ansoff Matrix

ansoff-matrix
You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is new or existing, and the product is new or existing.

Blitzscaling Canvas

blitzscaling-business-model-innovation-canvas
The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

Blue Ocean Strategy

blue-ocean-strategy
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

Business Analysis Framework

business-analysis
Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.

Gap Analysis

gap-analysis
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

Business Model Canvas

business-model-canvas
The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.

Lean Startup Canvas

lean-startup-canvas
The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.

Digital Marketing Circle

digital-marketing-channels
A digital channel is a marketing channel, part of a distribution strategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.

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