What does Added Value mean?

The goal of every businessman is to maximize sales and revenues as much as possible, and to minimize the cost of production to increase profit margins. The unit profit is the difference between the sale price and the production cost. Lower production costs and higher selling prices translate into a higher unit profit and vice versa. A company can increase the absorption of its goods and services by improving its products and services before putting them on sale. The added value is the process of giving a homogeneous product a greater sense of value. It can also be defined as a change in the physical form of a product to improve its value to promote its sale or sales returns. For example,

The concept of added value

The added value is an incremental measure of the utility created by a product or service of a company for customers. A product cannot be sold for a reasonable profit without creating value for it. For example, if a company buys material for $ 200 and sells it for $ 300, the added value is $ 100. The added value does not come by itself, but rather needs some time and changes to the material purchased. Changes in material are determined by work, capital, government policies and other factors of production. The added value is distributed to the various stakeholders, including the buyers, and is paid as regards salaries. The added value is, therefore, the increase in market value as a result of the change in the shape of a product, its location and availability excluding the cost of purchasing the material. Companies that build strong brands simply add value by putting their logos on the product.

Praise of the concept of added value

The added value is a means of customer acquisition. By adding values ​​to a product or service, a company can acquire new customers looking for better products and services at reasonable costs. It also helps the company maintain and build lasting loyalty with existing customers. A company is also able to quickly access a new market by offering a better product that offers more value to customers than competitors. The added value offers a competitive advantage for companies operating in a crowded market with competitors offering similar products or services because customers are looking for something special or extra in a product.

Criticisms of the concept

Although the added value is often praised for its accuracy, economists believe that it is far from that in practice due to the considerable cost of compliance and the complexity it generates for companies. Increase the price of a product or service by making it unattractive for low-income workers who would like to benefit from improved products. The addition of value also attracts additional costs that may not be covered in the sale price, leading to further losses for the companies. The added value ignores the exchange rate risk and the fluctuations in the prices of raw materials that may not be entirely covered by the selling price of the product.

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