What is Customer Value Chain & How to Use It in Product Development
A good grasp of the customer value chain is essential to product-led growth. Having a clear idea of how your solution adds value to your customers’ lives is the only way you’ll be able to clearly communicate the core benefits and get your value proposition across.
- The customer value chain is a combination of what your customers need, how they use your product, and the ways in which you can make it easier for them to use the product.
- Value chains differ from supply chains because the former focuses on increasing the amount of value a product provides, while the latter centers around the development and delivery process.
- Understanding your customer’s needs can result in cost savings and more loyal customers.
- Shifting companies’ focus or goals toward the customer value chain can lead to better decisions and lasting advantages that will benefit business activities for years if not decades to come.
- Value chain management consists of managing, monitoring, and optimizing all discrete activities that contribute to the customer value chain.
- Value chain analysis must factor in primary and support activities, probe customers to uncover insights, and incorporate feedback during product development and quality control processes.
What is the customer value chain concept?
The customer value chain comprises your customer’s needs, how customers use your product, and how you can make it easier for them to use it.
In essence, the customer value chain gives you a comprehensive look at how your product generates value in your customers’ lives.
The SaaS value chain is unique in that customers receive value from the product over a long period of time rather than a single interaction.
This can be a competitive advantage when used to generate recurring revenue but also brings with it the responsibility of regular feature updates and bug fixes.
Value chain vs supply chain
The primary difference between a value chain vs supply chain is that supply chains center around manufacturing/developing the product and then delivering it to the end-user, while value chains seek to continuously increase the value of a product as it makes its way across the supply chain.
Value chain analysis matters most to startups who don’t have much initial data to work with.
Why the customer value chain matters
Customer value chain analysis is paramount for a multitude of reasons, but a few key benefits are:
- Customer-centric businesses. While there’s merit to both product-centric and customer-centric business models, it’s impossible to fully capitalize on the customer-centric business model if you don’t have a well-defined customer value chain.
- Customer pain points. Insights into customer needs and customer pain points will guide your technology development while helping you refine your marketing strategies — offering a cost advantage over your competitors who’ll need to spend more on broad advertising campaigns.
- Decision-making. It’s a lot easier to make good decisions when you understand the needs of your existing customers, understand how most satisfied customers use your product, and go into all business processes with the goal of making it easier to use the product.
- Competitive advantage. An in-depth comprehension of what new customers (and current customers) are looking for in your product will help you build a more appealing brand with a differentiation advantage that will give your company a competitive edge over other solutions on the market.
What are value chain management and mapping?
Value chain management (VCM) is the process of managing and monitoring all stages of the customer journey associated with revealing needs, tracking usage patterns, and increasing ease of use in the final product.
This could include tracking key performance indicators (KPIs) that you’ve identified as most pertinent to your customer value chain or finding ways to streamline the production process with the goal of increasing productivity amongst your development team.
A value chain map, on the other hand, is a visual representation of the multi-stage structure and team members responsible for bringing a product from the development stage to the end user (while generating value for customers in the process).
How to perform customer value chain analysis in SaaS?
There are plenty of steps one must take to run an in-depth customer value chain analysis for a SaaS business.
These include looking at all the company’s activities related to the value chain, determining the cost-value breakdown of a business’s activities, and finding optimization opportunities to gain an edge.
In addition to these fundamental reviews of value chain activities, there are other levers you can pull like:
- Learning from more customers through welcome surveys.
- Monitoring product usage to identify primary and secondary activities.
- Collecting feature requests to uncover unmet customer needs.
- Incorporating user feedback into your product development moving forward.
Learn about customer needs with welcome surveys
Why does value chain analysis need to feel like rocket science when you can learn so much about new users through a welcome survey.
Collecting data directly from customers will provide key takeaways that can benefit your product, marketing, and sales teams.
Monitor product usage to identify primary and secondary activities
Looking at product usage is a crucial part of building a value chain framework, as it will show you how customers are currently using your software. This monitoring will help you answer two fundamental questions about users:
- What’s easy for them to do using our product?
- What’s hard for them to do using our product?
Identifying the most popular features can also prove useful whenever you need to remind customers why they signed up for your product in the first place — such as during cancellation flows.
Monitoring product usage is also cheaper than conducting market research, which should help you maintain high-profit margins.
Collect feature requests
A feature request is a user-generated suggestion for specific product changes that could improve the consumer experience.
By identifying the most in-demand requests ahead of time, you’ll also give your marketing and sales teams more preparation time to showcase these highly anticipated features at launch.
Collecting feature requests on a regular basis will also leave customers feeling confident that you’re actually factoring in their feedback as you move toward a finished product.
Probing customer interest for planned features can also help you reduce costs by skipping features that have zero demand.
Feature requests can be collected by asking a simple question:
Upon launching requested features, you can send out feature surveys to see if they meet expectations.
Incorporate customer feedback into your product development process
The technological development timeline for SaaS products is long and arduous as you need to pivot according to the ever-changing customer experience while keeping the company’s goal(s) in mind all throughout.
The easiest way to ensure that product development stays aligned with user expectations is to incorporate customer feedback across various stages.
Listening to the Voice of the Customer (VoC) is an effective way of ensuring your users remain loyal instead of switching to competitors who promise the most value.
Value chain examples
Before we wrap things up, there are a couple of notable value chain examples that could provide some insights and inspiration for your own business.
The two examples we’ll be looking at today are the e-commerce giant Amazon and the renowned coffeehouse chain Starbucks.
As a multinational consumer-facing technology company, Amazon’s value chain spans across numerous touchpoints that each add value in different ways for different shoppers.
For instance, the value chain of Amazon’s inbound and outbound logistics would look very different from the value chain of Prime Video.
That said, here’s a rough breakdown of Amazon’s overarching value chain across most of its brands:
- Marketing and advertising to potential customers or users.
- Leveraging inbound logistics, physical locations, or on-demand streaming catalogs to deliver value to customers acquired through the aforementioned marketing and advertising campaigns.
- Fulfilling outbound logistical operations such as shipping, warehousing, or securing strategic third-party partnerships with companies that could bolster Amazon’s physical or digital catalog.
- Increasing the value experienced by customers by upselling them to Amazon Prime — a program that improves user retention while generating expansion revenue in the process.
While Starbucks doesn’t have as many moving parts as Amazon due to its narrower target market and product catalog, its value chain is still quite impressive.
Converting raw materials like coffee beans into a unique product and experience for everyone who walks through those glass doors is just the start.
Starbucks’ value chain includes steps like:
- Building a memorable brand amongst its core audience.
- Delivering the best coffee and customer experience at each store.
- Getting customers to sign up for a Starbucks Card to boost retention and increase cash-on-hand.
As you can see, a successful value chain can improve customer loyalty, accelerate business goals, and increase the overall value that your product provides to end users.
Analyzing value chains will also prove helpful when automating processes and sustaining superior performance to keep you ahead of competitors.
We hope that, with value chains explained, you’ll be able to compound these advantages to dominate any market you enter.
If you’re ready to increase the value your product provides during both primary and support activities, then it’s time to get your free Userpilot demo today!