Importance of Value Chain Analysis
The importance of value chain analysis is great for businesses for a couple of reasons. It’s a tool that can help you study every process that your business is using. It ensures that your products will be delivered to your customers as effortlessly as possible.
Value chain analysis turns you into a more competitive, valuable, and efficient business. The change that can occur after this process will help you to create better products and deliver better services. Also, it will help you to create connections with other companies and more customers as well.
Identify All Value Chain Activities
In order to do a good value chain analysis, first of all, you need to identify all the factors that play any kind of role in product creation. Start with more important factors, then look through secondary factors as well.
Don’t be satisfied with simple answers and understand everything more deeply. You need to know what materials are used for your product, how many people work on that, how much time they need, etc.
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Calculate the Cost of Each Value Chain Activity
The next step is about figuring out how much money you spend on running the business. Having accurate information about this topic will help you understand how you are spending your money and how many benefits you get from this process as an end result. You’ll see which parts of your company require most of your funds.
Based on this information, you’ll know where you need to invest your money and how you can grow your business. You might reduce rent costs, and staff costs, or decide to promote more unique items or add new aspects to your products.
See What Your Customers Perceive as Value
You need to know what your customers need or want from you. In order to add more value to your products or services and become more competitive in the market, find what your customers perceive as value.
Most of the time customers don’t evaluate products objectively, because lots of them are influenced by society and their general environment. That’s why you have to understand their pain points and their exact needs. You can do online surveys to gather information, or work with focus groups.
Review Your Competitors’ Value Chains
In order to evaluate your competitors’ value chains you can consider several main points. Compare your process structure and operations to your competitors. Compare how you carry out different tasks. You can also review your high-level business strategies alongside your competitors. See what seems to work well, and what does not, and think about how you could use it. Check organic traffic, social media platforms, reviews, ratings, and every other aspect that will help you determine your competitors’ value chains.
Decide on a Competitive Advantage
At this point, you’ll have a clearer understanding of important topics, like your internal costs and your customers’ value. It’s time to decide what you are going to follow, cost advantage or differentiation.
You have to know what you are trying to achieve. For example, if your goal is to increase your income, cost advantage will be a more helpful option for you. But, if you want to become the market leader, differentiation is a better option.
If You Choose Cost Advantage
If you choose cost advantage you need to find ways, that will help you to optimize spending. To increase profitability, you might have to cut down production costs or cut the cost of different support activities. For example, you might replace certain human activities with workflow automation, or try to find cheaper delivery services.
If You Choose Differentiation
Differentiation involves adding value by offering a high-quality product that sets you apart from other competitors. A successful differentiation strategy requires good research and can help you to gain a competitive advantage. It will help you to set a premium price for your products or services.
You can use both of those options as well together to maximize impact. But while doing value chain analysis, you have to consider all the aspects related to them. It’s one of the most powerful processes your business can undertake, in order to reach new heights in the industry.
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