How To Build Efficient Sales Processes Through Value Chain Analysis

Though it is difficult for a large company to implement, competitive advantages can help businesses compete with rivals and can lead to more profits.

Through a value chain analysis, you can evaluate what the product or service entails and how to improve it. This includes breaking down the company's logistics, operations, and firm infrastructure to reveal the true value of a product or service.

In this article, we'll dive into how value chain analysis works and how it fits into the sales pipeline. Here are five steps to performing a value chain analysis.

What Is Meant By Value Chain Analysis?

The concept of value chain analysis was first introduced by Harvard Business School professor Michael Porter in 1985. His book, “Competitive Advantage”, outlines the basic concept and explains how businesses can identify primary and supporting activities to create value for their customers.

Porter argued that companies will have greater profit if the value of what they offer to their customers exceeds the cost they put into production.

Value Created - Cost of Creating that Value = Profit Margin

How To Implement A Value Chain Analysis

You can increase your profits by using Porter's value chain analysis as follows:

1. By cutting production costs and streamlining processes in order to increase profitability.

For example, if your company develops apps using a value chain model, it can save money by cutting costs on contractors or make more money by adding more value to the app.

Therefore, if your product is made for many different regions, states and countries, you may want to combine the two methods.

2. You may be able to lower costs by renegotiating contracts and creating unique products that can set you apart.

Regardless of the business process, the same concept applies: if you can provide more value as a company and make more profit as a result.

Companies often need to break down the value chain into two levels:

  • .Primary activities
  • Supporting activities

Primary activities include anything that affects the input or output of goods or services. Examples of these activities are:

Inbound/outbound logistics helps with the receiving, storing, and distributing of products, goods, and services. This activity involves practical processes like storage and warehousing, deliveries, stock and transportation needs as well as costs.

Learn What Operations Is And How It Impacts Various Aspects Of A Company

Sales & Marketing Strategies: The specific activities that a company undertakes to boost product awareness, increase trust, and close deals. Here are a few examples: promotion, advertising, and marketing.

Get a better understanding of what activities you should be taking on.

Research and development (R&D) is an activity that can be important for innovation in a company. It includes the research, development, and enhancement of new and existing products & services.

Procurement: Any materials or input needed to get the job done.

This is all about managing the people in your organization.

Responsibilities of some offices in an organization: It’s important to note that a value chain is more than just a collection of activities. Rather, these activities, both primary and secondary, make up an interconnected system.

Competitive Advantage

Understanding your production process is key to success. Conducting a value-chain analysis will help you identify gaps in your operations, products, and services to enable continuous improvement.

When you set measurable goals and carve out your competitive advantage, you can identify what content needs to be focused upon.

The competitive advantage or success of a company is controlled by the many discrete activities they undertake.

To make your product more appealing and boost profit margins, you need to use this strategy.

How Companies Can Use The Sales Pipeline To Promote Value Chain Analysis

Having a relationship with your clients will make it easy for you to emphasize the solutions your products provide, which could result in more deals. You can lead your prospects and customers to understand the value of your product starting with prospecting and ending with relationship building and closing.

Company activities that fall within this category include sales and marketing.

If you want to hit your monthly revenue targets and not just monitor them, it’s essential to analyze your sales pipeline. Know the number of leads you need from that pipeline to convert into customers so you can build a cost leadership competitive advantage. This way you know how much time, money, and effort to spend on deals and don’t overspend.

One Way To Measure Success In Sales

With sales knowledge, you can learn more about your most successful reps and what methods they use - then share the information to the rest of your team.

Your team will do better as a whole if each individual on the team is more effective. If reps are more effective at moving customers through the buying journey, you’ll make more revenue and your reputation will improve. Better brand recognition will also provide competitive differentiation which will help you differentiate yourself from other companies.

When looking at your value chain, evaluation of your sales pipeline is one of the most important steps. It can help you streamline processes, increase market value, and boost profit among other things.

EzzyCRM can help financial service companies to adapt and grow in a changing business climate.

Five Steps To Successful Value Chain Analysis

Step1: The Value Chain Activity Matrix is a step-by-step process to identify all value chain activities

Identify activities that play a crucial role in making your company's finished product.

For example, you should list what your product design team does, how many employees it has, and who are the people in charge of leading it.

  • We talk about average design team size
  • How much time does each team activity require?
  • Which raw materials need to be used?

When you have a detailed list of primary activities and support activities, it’s time to get started with the next step.

In order to get all tasks organized, encourage cross-collaboration between departments. A task management app can keep track of each activity and create a visual chart while they identify the activities in their value chain.

Step 2: Calculate each value chain activity's cost

How to calculate the cost of rent, utilities, and staff when you're a restaurant owner. By knowing how your business spends and earns money, you can better predict how profitable it is.

Taking into account all of a business’s activities, managers can categorize which parts are costing them the most. Too much of the price for a cup of coffee is lost in the supply chain.

  • Milk
  • Transport
  • Stirrers
  • Rent
  • Staff
  • Taxes

Let’s break down the cost of running a coffee shop. Rent is expensive but not as much as staff and products. Knowing this, it’s easy to see what we should focus on in order to lower costs.

If you are looking to lower your rent costs, you can try negotiating your contract or finding a cheaper location. However, this may result in fewer customers stopping by. It's still worth it if you want to lower your rental cost.

Industries could evaluate how many people are scheduled per shift and potentially cut staff hours during less busy times.

Alternatively, if they cannot streamline their process or lower costs, they could try to boost their value. They can do this by creating and promoting unique items for their store, or sourcing new ingredients that boost sales or engagement.

It is easy to see that accounting for the minutiae in your company can lead to a successful result.

Step 3: How to determine what customers value

The price of a product is the most important factor that affects an individual's perception of the product. This has a direct effect on the profitability of a company.

Brand name painkillers are more expensive, but customers value the product more thanks to their perceived health benefits. Research has found these products have identical efficacy to generic varieties and yet, people believe they are better for their health because they're a more well-known brand.

The end customer may not always be certain of what they want. For this reason, it is important to understand the psychology of your customers and interpret the data you collect from them. This will help identify patterns in your customers’ behavior and ultimately that makes for a more engaging customer experience.

Knowing why your customers make buying decisions will help your sales team prospective and qualify potential customers. Understanding the intent of your customers is crucial as this guides their purchasing decisions and leads to a higher chance they'll also buy more products.

What one person buys, another might pass on. When it comes to products, the price is decided by how much a person wants it, not how valuable it is. This is due to societal influence and group-think.

People often make decisions based on the actions of their friends and close social groups. For example, if your social circles are now buying noise-canceling headphones at work, you may start thinking they are valuable even if you hadn't before.

With data on your customers and their social circles, marketers can create more effective campaigns to motivate others to buy their products.

Step 4: To look at your competitors’ value chains

When determining the value of a company, you can get a sense by looking at the market and seeing how they compare to their competitors. Since it’s unlikely that you have access to specific information about their infrastructure, you have to get creative.

You can use competitive benchmarking in a variety of ways:

  • Benchmarks are to compare the way that you save your operations against how other companies do them.
  • Compare your business strategy to your competitors to see if you're following a successful strategy.
  • Track the performance of something, such as a machine or a person's output

The first step is to decide what your competitive benchmarking goals are; then, you can conduct research on your competitor and compare their value against yours.

You need to look at the sales and marketing value chain for online companies, depending on the effectiveness of your competitors.

Use insights on your competitor’s marketing and advertising costs to best determine where you should spend your revenue. McKinsey recommends obtaining information on the larger corporations by following a competitor insight loop that analyzes their strategy and decision-making process.

In order to successfully use this process, tap into the latest data from your competitor's frontline workforce, such as a blog or shared database. Knowing your internal costs can make calculated decisions about changes to your company. You can outsource talent, replace human work with automation or find cheaper delivery services.

Cutting costs in any section of your supply chain to lower the cost of your end product will give you a competitive edge over other companies. If you want to compete for your customer's dollars, you need to find a way of positioning your products as providing more value than what is available on the market. You can solve your customers' problems by identifying their pain points.

For instance, the sales team can emphasize product differentiation by mentioning it during the sales pitch and closing stages.

  • Highlighting the features that set you apart
  • Listing other businesses who have used your product service and felt satisfied and confident.

Value Chain Analysis In Practice, With Apple

Steve Jobs began creating Macs in the 80s. He wasn’t doing it for customers, he was doing it for himself.

The group he selected to judge the program was not concerned with whether they liked it or not.

Steve Jobs was quoted as saying "people don’t know what they want until you show it to them."

Steve Jobs’s success was the result of his ability to know the minds of customers and offer products that aligned with their preferences. His company had huge expenditures on creative processes, which were possible due to tight control over costs for operations, logistics, and support.

According to a value chain analysis, this is how Apple became so successful.

What Are Apple's Primary Activities?

1. Inbound Logistics

The enormity of Apple’s supply chain includes that 98% of the company's materials, manufacturing, and product are provided by its top 200 suppliers. It's difficult for manufacturers to manage the sheer volume of suppliers and inbound logistics.

So, Apple created a supplier program, requiring suppliers to meet high-quality standards, and formalized this into the Apple Procurement Program.

Business is competitive and fast-paced. Suppliers need to be agile and respond quickly to changing business conditions. Above all, Apple values innovation. They appreciate suppliers who understand the challenges of running a company and those that help find the best solution possible.

Every year, suppliers are re-assessed to ensure they meet Apple's standards and provide the best quality

2. How To Deal With Operations

Apple outsources manufacturing to Japan and China because they have lower labor and raw material costs, which in turn lowers overall manufacturing costs.

3. Outbound Logistics

Apple allows the purchase of products online and in company stores. Apple will continue to do well because they maintain a number of retail outlets.

Apple nets $80 for their iPod wholesale, an estimated 25% discount. They have a $45 retail margin for any product purchase on the Apple website or at an Apple store. For the 30GB 5th Gen iPods that are not purchased through an Apple outlet, they take away a gross profit of $80 from them.

4. Apple’s Marketing And Sales Efforts Reflect Their Design, Quality, And Innovation

The company is investing in marketing and advertising to sell innovative products.

Apple's approach to marketing is related to its perceived competitive advantage: highlighting value. As Jacqueline Basulto points out, Apple not only reflects the cost of its products but also portrays the value of its advertising. Gaining and maintaining customers is tough with online competition.

Apple offers customer service for the products sold by the company. Customers can book appointments or find support from staff.

Apple stores have a staff of trained technicians who are able to guide and interact with customers looking to buy. This helps customers see the wonderful features of Apple products, and encourages them to buy.

Research and development:

Apple invests heavily in its research and development, which has allowed them to introduce more than 28 products into the market this year.

Human Resource Management:

Apple has the best HR practices in addition to being one of the best companies to work for. They are known for hiring top candidates and even going as far as poaching other companies' talent when they need a new employee.

Learn How To Do Value Chain Analysis

Conducting a simple analysis of your company's value chain can be crucial to the success of your venture.

A value chain analysis can tell you where your company spends its money and how well operations are working. Without a detailed analysis, it's impossible to detect competitive advantages and identify savings.

The value chain analysis can help identify wasteful activities in your product production and provide insights on making those processes more efficient.

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