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
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
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.
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.
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.
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.”
Coupling
Coupling is a way for startups to move to adjacent areas as they create options to scale.
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.
Read Next: Business Model Innovation, Business Models.
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