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What is Value Added?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 01 November 2016
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Value added refers to some type of additional incentive or enhancement that is offered by a producer in order to attract the attention of consumers. The goal of offering value added goods or services are to ultimately not only build up consumer recognition, but to motivate consumers to purchase those products and become loyal customers. This sort of approach or strategy can be used to stimulate sales of existing products, or to launch a new product and build a viable customer base sooner rather than later.

In many examples of value added products, the manufacturer provides the customer with some sort of additional incentive to make a purchase. For example, a company that manufactures candy bars may increase the size of the bar so that it is ten percent larger than the candy bars offered by the competition. At the same time, the manufacturer maintains the same price. The customer is pleased, because he or she gets more candy without paying any extra cost. The manufacturer benefits from an increase in the volume of sales, which helps to offset the slightly lower profits made on the sale of each individual unit.

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The competitive advantage achieved with the use of a value added strategy can be significant. New businesses that want to gain a market share as soon as possible may add some sort of additional benefit that is not available with products that are already on the market. This has often been the case with household cleaners, in that newer products would feature higher concentrations of cleaning ingredients, or include some type of pleasant scent that was not available in the products of competitors. At the same time, the price for the product would match or even be slightly lower than products offered by other businesses. Here, the customer benefits from buying a product that cleans better, leaves the home smelling nicer, and still does not spend any extra money.

In order to determine how to go about creating some sort of value added incentive that will attract customers, businesses often rely on field research to identify what consumers really want. By taking surveys, conducting controlled tests with certain demographics of customers, and considering feedback and suggestions from existing customers, it is possible to find ways to make a good product even better, often with little additional cost. If the enhancement does in fact catch on with consumers, the end result is a higher degree of consumer appreciation, increased sales, and in general more financial stability for the company that manufactures the product.

The concept of value added applies to general finance and the economy as well. For example, businesses often pay what is known as a value added tax, a tax that is levied on the sale price of goods and services. Analysts also make use of a calculation called a value added monthly index, or VAMI. This calculation makes it possible to assess the return gained by an investor from one period to the next, and thus evaluate the performance of a fund manager as the same time.

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