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THE CUSTOMER VALUE CHAIN

For those who have studied administration and marketing, the concept of Porter's value chain is well known. It can be summarized by all the activities carried out by the company to increase the value of a product or service. Depending on the who and the why of the analysis, the focus can change: creating value for the shareholders, the managers, the employees or the customers. Normally, everyone's interests are aligned, but not always. For example, when launching a new product: the value created for the shareholders is in the future, while for the customer it is right away.

In this article, I will look at the customer value chain for the service industry customer. What is so special about the service industry? The customer is both the input and the output of this process.

The best way to illustrate this concept is to imagine a factory with an assembly line. Each station represents a stage in the transformation process that adds value to the initial input. Let’s think about a canned tomato sauce manufacturing plant with the following inputs: tomatoes, ingredients, water, cans and labels. (It's possible that I've forgotten some aspects as I'm not an expert in canned tomato sauce.) Each station transforms the product: peeling, chopping and cooking the tomatoes, and adding the ingredients that result in making a succulent tomato sauce. At the end of the process, the product is canned, the labels are applied, and everything is packaged and ready to be shipped.

For a service company, the main input is the customer. Let's compare the stages of the process as we did with the tomato in the previous example: the different stages in the transformation process are completed to satisfy the customer. How can you copy this model? Take an accounting firm that specializes in preparing income tax return for companies. The input is the customer who has not filed tax and the output is the customer who has fulfilled his responsibilities by paying his/her taxes. The intermediate stages are the actions required to achieve the final goal: paying the taxes. So there are several stages: preparing the service offer, collecting the supporting documents, reviewing the previous financial statements to understand the current situation and previously used accounting standards, presenting the preliminary financial statements, making any necessary corrections, having the financial statements approved, preparing the tax return, paying them, sending the duly signed documents and following up if the government has any questions. Have I forgotten any steps?

Why is this analysis important for your business? There are several reasons. Previously, I wrote an article on "loss leaders" and how to use them to bring new customers into the transformation process. One of the strategies that some tax companies use to get new customers is to estimate the amount of money you could save or receive from the government by doing business with them. Some even use strategies such as not charging customers service fees and taking a percentage of the returns instead. I am neither endorsing nor criticizing these tactics; I am simply presenting them to illustrate how part of the transformation process can be used to encourage the customer to come to you. In understanding your value chain, you can use part of the process and offer it to the customer as an incentive.

The other important aspect to consider is that once your company is well established, you can transfer stages in your value chain to junior employees or subcontractors. In understanding at which stages you can maximize your contribution and which stages you can delegate, your profitability increases while you keep your customers happy.

If you have any questions or comments, please do not hesitate to contact me.

 

Stéphane Elmaleh-Riel, B.Ed., MBA
Marketing consultant