Value-Added Product: Industry and Marketing

What Is a Value-Added Product?

A value-added product is a commodity enhanced with qualities that make it worth a higher price than its raw materials. It may be more convenient, attractive, palatable, or easier to use than its ingredients.

Adding value explains why businesses sell their goods or services for more than their production costs.

In marketing, added value is a message to consumers about why a product is worth more than its ingredients and why it’s better than competing products.

Key Takeaways

• Value-added is the additional features or economic value that a company adds to its products and services.
• Adding value helps companies attract more customers, boosting revenue and profits.
• Value-added is the difference between a product’s price and its production cost.
• Value can be added by adding a brand name or assembling a product in an innovative way.

Understanding Value-Added

Value-added is the difference between a product’s price and production cost. It is created in different ways.

This includes special features added by a company to increase value. Adding value can increase a product’s price. For example, offering a year of free tech support with a computer is a value-added feature. Individuals can also add value with advanced skills.

With access to a range of products and services, companies strive to find competitive advantages. Understanding what customers value is crucial for production, packaging, marketing, and delivery.

Bose Corporation, for example, has shifted focus from producing speakers to delivering a "sound experience". BMW cars sell at a premium due to their reputation for performance, engineering, and quality parts.

Value-Added in the Economy

The contribution of private industry or government to gross domestic product (GDP) is the value-added of an industry or GDP-by-industry. The total value added is the market price of the final product or service. It’s used to calculate value-added tax (VAT).

Economists determine an industry’s contribution to GDP by comparing total revenue to total input costs. Input costs include labor, materials, and services bought from other businesses.

Economic value-added, or economic profit, is the value generated by a business from its invested capital.

Value-Added in Marketing

Strong brands increase value by adding their logo to a product. Nike can sell shoes at a higher price due to their brand reputation. Luxury car buyers are willing to pay more for a BMW or Mercedes-Benz because of the brand and maintenance programs.

Amazon dominates the e-retail sector with automatic refunds, free shipping, and price guarantees. Customers value the convenience and are willing to pay for Amazon Prime memberships.