Added value
Also called: value added
The concept of added value has both an economic-scientific and a marketing-economic meaning.
Economic value added
The first meaning of value added is the value added at a particular link in the business chain. In other words, the difference between the purchase value of raw materials or products and the market value to the buyer.
To give an example, a farmer tends his livestock with the aim of being able to supply milk to a dairy. The price he receives per liter can be considered compensation for the hours and costs incurred to provide this raw product. The factory then processes the delivered milk into saleable products, again adding value. Similarly, the supermarket that procures these products provides efforts before the customer leaves the store with a full shopping cart, whereby value is again added.
So this added value is not the same as the margin or profit. It is the pure increase in value during the production and distribution process of which the costs incurred and profit are part.
In almost all countries, value-added tax (VAT) is charged on the sale of products and services. Because the VAT to be remitted is passed on to customers, VAT is ultimately paid only by consumers and organizations not subject to VAT.
Marketing value added
Marketing value added is the motivation for choosing a particular product or brand or doing business with a particular company. This added value may consist, for example, of qualities that distinguish a product or company from competing alternatives. Value added goes beyond what might be expected of such a product or service by default.
The associated proposition is important, among other things, when preparing a business plan.
