Unlocking Customer Value: The Relationship between Value Chain and CVP

The moment we talk about value proposition, one starts thinking about customers’ needs, pains, and wants on the one side; and, a value map describing a solution, pain reliever, and experience on the other.

But we also need to look at it from the organization’s internal value chain perspective. The internal value chain depicts a series of activities an organization does to deliver value to the customer. A critical aspect of this value creation process is understanding the connection between an organization's value chain and its customer value proposition. If the internal value chain is not capable of delivering an ‘identified’ value proposition; we either need to change our value proposition or make changes to the organization’s internal value chain – in line with the customer value proposition.

This relationship plays a pivotal role in shaping an organization's strategic direction and success.

The Value Chain:

An organization's value chain represents the entire sequence of activities and processes required to produce, market, and deliver a product or service to customers. These activities are divided into primary and support activities. Primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service, while support activities comprise infrastructure, human resources, technology development, and procurement.

Understanding Customer Value Propositions:

A customer value proposition (CVP) is the unique value that a company promises to deliver to its customers. It answers the question: "Why should customers choose our product or service over others?"

Three common CVPs are:

1. Overall Low Cost: This CVP focuses on delivering products or services at the lowest possible price. It attracts price-sensitive customers who are looking for budget-friendly options.
2. Product Leadership: This CVP centers on offering superior quality, innovation, and cutting-edge features. It appeals to customers who value product performance and uniqueness.
3. Customer Intimacy: Customer intimacy is about building strong, personalized relationships with customers. This CVP targets individuals who value exceptional customer service and tailor-made solutions.

The Relationship Between Value Chain and CVP:

The organization's value chain plays a pivotal role in shaping its customer value proposition.

Let's examine the connection for each of the three CVPs:

• Overall Low Cost: To deliver a low-cost CVP, an organization must streamline its value chain for efficiency. This may involve minimizing production costs, optimizing supply chains, and reducing operational waste. Through these cost-saving measures, the organization can offer competitive prices to its customers while maintaining profitability.
• Product Leadership: Organizations aiming for product leadership invest heavily in research and development, innovation, and quality control. These activities are embedded in the value chain and directly influence the development of superior products.
• Customer Intimacy: This CVP requires a personalized approach throughout the value chain including tailored marketing, responsive customer service, and customized solutions to deliver an exceptional customer experience. The organization's ability to adapt and meet individual customer needs defines its success with this CVP.

To summarize, an organization's value chain and customer value proposition are intrinsically linked. The value chain is the engine that drives the delivery of either of the three CVPs. By aligning these two elements effectively, organizations can craft a unique and compelling value proposition that resonates with their target audience and sets them apart in the marketplace. Recognizing this connection and strategically optimizing the value chain can be the key to long-term success and competitiveness in today's dynamic business environment.