What is ‘value adding’ and How can you use it in Business?
Value-added is the extra features a company adds to its products and services before offering them to customers. Adding value to a product or service helps companies attract more customers, which can boost revenue. Value-added is the difference between a product's price and the cost of producing it. Therefore, adding value increases the amount of profit that a business can make.
A business can add value in a number of ways, such as through the use of a unique selling proposition (USP), through promotional campaigns or through its supply chain. Value can be added in different ways, such as adding a brand name to a generic product or assembling a product in an innovative way. Adding value to a product or service helps companies attract more customers, which can boost revenue.
Value adding has a number of advantages over discounting. First, it gives your business a point of differentiation over your competitors. If a price war erupts you can avoid it by value adding your products instead of joining the war. What normally happens in price wars is that the company with the biggest cash reserves lasts the longest and everyone else goes broke. Price wars have no winners other than the consumers because businesses end up doing lots of work for no money. If you are not making money, why bother being in business?
How do you calculate the value added?
Added value in financial analysis of shares is to be distinguished from value added. It is used as a measure of shareholder value, calculated using the formula: Added Value = The selling price of a product - the cost of bought-in materials and components.
The key benefits to a business of adding value include:
· Charging a higher price.
· Creating a point of difference from the competition.
· Protecting from competitors trying to steal customers by charging lower prices.
· Focusing a business more closely on its target market segment.
Finding ways to add value is a really important activity for a start-up or small business. Quite simply, it can make the difference between survival and failure; between profit and loss.
Dr Praveen Srivastava, Business Coach & Management Consultant
Recipient of Philip Kotler excellence award in the area of Consulting and Training
www.praveencsrivastava.com & www.pnpconsultants.net