adding value

5. Adding Value

What is added value?

Adding value sounds like a bit of business jargon – and it is! However, it also has quite a precise meaning which is important. So it is worth learning this:

Adding value = the difference between the price of the finished product/service and the cost of the inputs involved in making it

Added value is equivalent to the increase in value that a business creates by undertaking the production process.

It is quite easy to think of some examples of how a production process can add value.

Consider the examples of new cars rolling down the production line being assembled by robots. The final, completed and shiny new car that comes off the production line has a

value (price) that is more than the cost of the sum of the parts. Value has been added.

Exactly how much is determined by the price that a customer pays.

Alternatively, imagine a celebrity chef preparing a meal at his luxury restaurant. Once the cooking is complete, the meal is being served and sold for a high price, substantially more than the cost of buying the ingredients. Value has been added. You don’t have to use robots or have the culinary skills of Gordon Ramsay to “add value”.

For example, businesses can add value by:

• Building a brand – a reputation for quality, value etc that customers are prepared to pay for. Nike trainers sell for much more than Hi-tech, even though the production costs per pair are probably pretty similar!

• Delivering excellent service – high quality, attentive personal service can make the

difference between achieving…