Adding value
Added value is the difference between the selling price and the cost price of a goodA product that can be touched. or serviceSomething a business provides that is intangible, ie not able to be touched.. When a good or service is made more appealing, customers will usually be willing to pay more. Therefore, adding value increases the amount of profitsThe amount of money made after all costs are deducted. that a business can make.
Question
A crisp manufacturer buys £100 worth of potatoes and turns them into crisps. It then goes on to sell those crisps for £200. How much value has the crisp manufacturer added to the potatoes?
Value added = selling price − cost price
£200 − £100 = £100
Therefore
Value added = £100
How a business can add value
A business can add value to a good or service in a number of ways. For example, the following are some ways of adding value to a sweet potato:
| Method of adding value | Description | Example |
| Convenience | Saving customers time by making a product easier to use will result in customers being willing to pay more | Ready-prepared food, eg vegetable curry |
| Branding | Brand awareness can encourage customers to pay more for a product if they trust the brand name that produces it | An established ready-meals business that is well known to customers |
| Quality | Customers are usually prepared to pay more for higher-quality products | Good quality, organic vegetables used in the curry |
| Design | The features that a product has or the way that it is presented can add value | The way the vegetable curry is packaged |
| Unique selling point (USP) | A unique selling point is something that makes a good or service stand out from the competition and makes it more attractive to customers | Produce sourced locally, making the product more environmentally friendly than competing brands |
| Method of adding value | Convenience |
|---|---|
| Description | Saving customers time by making a product easier to use will result in customers being willing to pay more |
| Example | Ready-prepared food, eg vegetable curry |
| Method of adding value | Branding |
|---|---|
| Description | Brand awareness can encourage customers to pay more for a product if they trust the brand name that produces it |
| Example | An established ready-meals business that is well known to customers |
| Method of adding value | Quality |
|---|---|
| Description | Customers are usually prepared to pay more for higher-quality products |
| Example | Good quality, organic vegetables used in the curry |
| Method of adding value | Design |
|---|---|
| Description | The features that a product has or the way that it is presented can add value |
| Example | The way the vegetable curry is packaged |
| Method of adding value | Unique selling point (USP) |
|---|---|
| Description | A unique selling point is something that makes a good or service stand out from the competition and makes it more attractive to customers |
| Example | Produce sourced locally, making the product more environmentally friendly than competing brands |
