Added Value Definition and Types of Added Value
Added value, from a financial point of view, represents the difference between the value of goods and services that are used as inputs to a production process and the value of the outputs of that process.
Added value, from a marketing perspective, means adding value that turns a commodity into a branded product. Branded products and services can also have value added by enhancing their design, characteristics or range of features.
Commodities are basically unprocessed, raw products such as crude oil, meat carcasses, fresh fruit and cotton bolls. To add value to a commodity it needs to be processed in some way to turn it into a branded product that consumers are willing to pay more for than the raw product. For example, a food processor could purchase milk from a dairy farmer and make it into cheese. The packaged cheese has added value and becomes a branded good.
The value people place on goods and services determine the quantitative value (the money people are willing to exchange for the product) and the qualitative value (the desirability of the product).
Common examples of adding value include:
Turning cotton into fabricTurning milk into cheesePackaging ready-to-use, grated cheese into serving size packetsTurning wood into paperDesigning a mobile phone that can also take photographsFortifying food with vitamins and mineralsTypes of Added Value
There are several types of added value that a business can employ to improve their products and services.
QualityEnvironmentalCause-relatedCulturalThe different types of added value are not mutually exclusive and can be employed at any phase of the production or service cycle.Quality Added Value
Quality added value is basically adding convenience, ease of use or other desirable characteristics that customers value. For example, turning a commodity into a branded product or design enhancements like pull tabs for easy opening or sipper tops on beverage bottles.
Environmental Added Value
Environmental added value employs methods or systems that do not harm the environment or are less harmful than those commonly used. For example, using less electricity, using less fuel and using recycled material for packaging.
Cause-related Added Value
Cause-related added value is a social marketing strategy where businesses contribute part of the revenue from a product or service to a cause. For example, a business may donate a percentage of revenue from each transaction to a cause such as an educational facility for disadvantaged children or a wildlife sanctuary.
Cultural Added Value
Cultural added value is also a social marketing strategy that employs methods or systems of production involving cultural aspects or allow for the needs and sensitivities of cultural groups. For example, producing kosher food (in accord with Jewish law) or using a combination of English and the language of other ethnic groups in a community in written communications.
Adding value can be used as a marketing strategy to differentiate a product from competing products. Such strategies should be fully researched and included in a business plan to show the potential benefits to a business.