Business success hinges on the creation of value. Offering value to customers leads to better acquisition, retention, and advocacy while delivering value to the business leads to higher margins and profits.
Understanding where and how your company adds value improves operational efficiency and highlights areas where you might gain a competitive advantage.
The practice of examining the actions carried out by a company in order to give a valuable product or service to clients is known as value chain analysis. Analyzing the value chain reveals whether the value each individual activity gives to the consumer is greater than the cost to the business of performing the activity.
The value chain, first proposed by Michael Porter in 1985, is made up of nine value-adding activities that influence profit margin. There are two categories of these: primary and support.
The five primary activities are those directly associated with producing and selling a product or service and include:
Support activities are those that support the primary activities and include:
When it comes to making a buying decision, customers are spoiled for choice. To acquire a competitive advantage, you must attract their attention and win their business by providing something that has a higher perceived value than the other possibilities on the market. Two tactics can be used to gain a competitive edge: cost advantage and differentiation advantage.
1. Determine which activities are part of the value chain.
Determine the main and supporting activities required to sell your product or service. One of the primary activities in the banking industry, for example, is the marketing team running advertising campaigns to attract new customers, which is supported by the business technology team making it possible for customers to quickly and easily create new accounts via the digital channels they have become accustomed to, such as mobile banking apps.
2. Determine the cost and benefit of each activity.
Calculate the cost of each action as well as the value it adds to the company and/or the customer. In the banking example, the team would look at whether marketing activities are yielding a decent return on investment in terms of client acquisition, as well as whether the company’s technology is giving value to both internal and external customers.
3. Identify areas where you can gain a competitive advantage.
Determine which activities have the best chance of gaining a competitive cost or differentiating advantage. Could the marketing team, for example, negotiate a better bargain with the advertising agency they use or run a promotion that clients prefer to those offered by competitors?
“A stack is a set of tools that work together to achieve a specific result. Many teams have an entire stack of tools they use to market, sell, and communicate with their customers. The answer to this is called a Growth Stack.” HubSpot