Companies are in constant competition to keep their current customers and win new ones. That’s why every organization needs to find ways to offer consumers more value. To grow despite the competition, businesses like yours need to perform value marketing, showing customers the benefits they’ll receive from your product.
But how do you identify that value? That’s where value chain analysis comes in. Keep reading to learn what value chains are, how to analyze your value chain, and how to use your value chain in marketing.
A value chain is the collection of steps a company takes to convert products from concepts to market-ready solutions. The company’s goal is to find processes that set it apart from competitors. The company implements these processes to build value and sell its solutions and services for a profit. Each step of the value chain is supposed to build more value for the company than it costs to perform. That gap is where profit is found.
Every company has a value chain. Only some have taken the time to actually study these chains, however. The purpose of studying a value chain is to help a company make money by identifying strengths and weaknesses in its current business models. As a result, it can become more efficient by reducing unnecessary costs and producing more value. Essentially, studying your value chain can help make your company more profitable by increasing income and reducing expenses.
While every company’s individual value chain will look different, they all can be broken down into primary and secondary activities. Each step of an individual value chain falls under one or more of these activities. Understanding how these activities are linked can help you examine your company’s actual sources of value.
Value chains have five primary activities. These are the main activities that capture value — without them, a company can’t actually make a profit. These five activities are:
These five activities as a whole are intended to create value for the company that’s greater than the cost of performing them. As a result, they lead to profit for the business. For example, operations convert raw materials into the products customers want to buy, raising their value. Meanwhile, marketing and sales can convince more customers to buy products at higher price points, increasing the value of each sale.
After the primary activities, companies consider secondary activities in their value chain. These four activities include:
These four activities are intended to support the primary activities of a company. They don’t generate value on their own, but they multiply the value companies receive from primary activities.
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For instance, excellent procurement can decrease the cost of operations. Similarly, infrastructure can improve inbound and outbound logistics, leading to a higher profit margin overall.
Value chains already exist — you don’t need to implement a value chain because it’s already present. However, you can manage and study your value chain. Take control and see many different benefits, including:
Every company has a value chain in place. How these chains break down depends on the kind of goods or services a company provides. Here are two examples of standard value chains.
A car manufacturer’s mission is to build and sell as many cars as possible. Any manufacturer is primarily a goods-based business, so most manufacturing value chains will look like this:
A lawn care service is an entirely service-based business. That means that the operations and outbound logistics elements look a little different from product-based companies.
Value chain analysis is the process of studying your company’s value chain to find its strongest competitive advantages. When you know what links in your value chain generate the most (and least) value, you know where to focus your attention. You can protect high-value elements from change while working to improve the value you receive from struggling links.
A complete value chain analysis needs to take into account every element of your company’s chain. It takes time and research, but it pays dividends. Here’s how to properly analyze your own company’s value chain.
There are three steps involved in value chain analysis. You can apply these steps to any kind of business.
While the examples above demonstrate general value chain activities, you should go into depth. You can break down every action your company performs and determine whether it’s a primary or secondary activity. Remember, primary activities directly create value, while secondary activities increase the value of primary activities.
Analyzing cost is straightforward, though it takes time. You’ll need to determine the cost of:
The goal is to determine the total cost of each activity. Don’t leave out any money spent by your company.
Next, analyze each activity to see what value it provides to consumers and your business. This can be obvious, like the conversion of raw wood into a dining table. It can also be more abstract, like providing better customer service or safer shipping.
Finally, look for ways to grab a competitive advantage. Are there unnecessarily high costs? Look for ways to lower them, like switching vendors to a nearer or less expensive alternative. Is there a way to add additional value to your product? Research ways to do so without significantly increasing costs.
Once you’ve performed this analysis, you can start making changes. You’ll likely find places where you can make minor adjustments and either dramatically cut costs or improve value. Make those changes first, then go through the rest of your list. These refinements may take some time, but you’ll be improving your company’s results the entire time.
Marketing is one of the primary activities in every value chain. You can improve your marketing approach by taking a value-oriented approach.
You already have a value chain. You can ignore it — or you can study and learn from it. If you want to grow your business, integrating an understanding of your value chain in marketing is a smart choice. You can use this knowledge to perform better value marketing, keeping your customers engaged and loyal.
DecisionLink is a leader in value management and marketing. If you want to learn how DecisionLink can help you perform value chain analysis and start value selling, schedule your free customer value management assessment today. Or if you want to learn more about customer value management, get your copy of our eBook “Unleashing Customer Value: Your Guide to Agile Value Management.”