Added value is the reason why companies can sell their products for more than they cost to produce.
There are 5 methods a business can use to add value and make a product or service
more appealing to the customer. By adding value through these methods, the business
is incentivising customers to purchase the product, which in turn increases their revenue.
Here's a simple example of how a business can add value to an everyday item such as a watermelon.
A full watermelon cost roughly £2.99 in the UK. You buy it, take it home, chop it up and eat it,
job done. However, a business can add value to that watermelon by removing the rind,
chopping it up into small cubes and putting it in a pot with a small plastic fork.
That Watermelon has gone from costing roughly 50p per Kilogram
to costing £5.40 a kilogram which is a 10x increase for the same product.
Why will a customer pay 10 times more for the same product?... Convenience
Convenience is the first way a business can add value to a product.
By removing the rind, chopping the watermelon, and packaging it in a ready to eat package the
business has made the product more convenient for the end consumer. The customer does not
have to chop up the watermelon themselves, it can be carried easily in a bag and eaten on the go by
busy people or by a child as a snack. By making the product more convenient for the customer the
business can charge a premium for the watermelon, which increases profit margins on the watermelon.
Branding is the second method a business can use to add value.
Having a well-recognised, trusted brand is a huge asset to a business as it is often the
reason customers purchase a product or service over similar alternatives. For this reason,
branding adds value to the goods a business produces.
Take these two items for example. One of the items is plain footwear and the other is from
the globally recognised brand Nike. Both are made from similar materials and look similar.
However, the unbranded trainer sells for roughly £12 and the Nike one roughly 100.
Nike has added value to their version of this trainer, almost solely because of branding.
To the customer the Nike logo means something, it may represent trust,
it may represent better quality or the brand could just stir up a positive emotions in the customer.
Either way customers are willing to pay more for Nike products than non-branded alternatives.
Quality is the third way of adding value. Customers will pay more for quality or
the perception of quality. Why do Marks & Spencer charge more for their food than Aldi?
One of the reasons is quality. M&S have added value to their food through the promise of better,
high-quality produce and charge a premium for this promise of quality.
The same is true for luxury cars, watches, and clothes. Customers
pay a premium expecting the products to be better quality than cheaper alternatives.
Next up is Design, by designing a product with desirable features and to look aesthetically
pleasing a business is adding value as it may be what differentiates their products
from competitors. Gymshark adds value this way by having different collections with different
features. For example, their adapt collection is designed to be flexible, comfortable with a
lighter feel. Whereas their energy collection is designed for high intensity workouts and comes
with features such as sweat wicking material, seamless designs, and breathable fabrics. These
features have differentiated them from the basic run of the mill gym wear, allowing them
to add value to their clothing and incentivise customers to pay a premium for their products.
Unique selling point is the final way a business can add value. What about your
product is different from your competitors? Well, if a business has a strong usp then this
allows them to charge higher prices as customers don’t have the option to switch to a competitor
placing a premium on their own goods. Lush is a prime example of a business adding value to
their products via a strong USP. Lush entered the cosmetics market as an ethical option
for consumers at a time when many of their rivals did not have very strong ethical credentials.
Lush’s stance on the environment and saying no to animal testing meant that their products aligned
with their customers values and therefore customers were willing to pay more for the
products they produced. The added value was in their ethical reputation in an unethical industry.
Regardless of how a business chooses to add value,
adding value to products and services is extremely important
as it incentivises customers to make purchases and increases the businesses ability to make money.
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