Do you know one thing every business has in common? They all try to add as much value as possible to their products and services!
Adding value is increasing the difference between the cost of producing a good/service and the price of selling.
Businesses can add value in different ways:
1. The most common way of adding value is through production: turning raw materials in to finished goods.
Example: customers are willing to pay more for a dish at a restaurant than for the same raw ingredients in the supermarket.
2. Adding value through branding is not uncommon: many companies with a very strong brands can easily charge premium price for their products compared to their less-known competitors'.
Example: Apple charges premium for their products not because they are of higher price but because their brand is valuable in the eye of the customers.
3. Providing outstanding and personalized service is also a great way of adding value to products and services.
Example: a tailor adds value to its suits by making it according to the customers' requests (color, size, measurements) and therefore has the chance to charge premium for doing so.
4. Continuously adding features to products is a great way of adding value to your products.
Example: Apple has been continuously adding features to the iPhone for almost 15 years!
5. Lastly, offering convenience to customers (location, variety, speed) adds great value to goods and services.
Example: when you go to a store you want to have as many options as possible at the moment when you are there. You also want to have the store conveniently location near you.
As you can see businesses can add value to their goods and services in different ways. It all depends on their specific industry.
The more value you add the more you can charge for your goods and services. And more importantly, remember that profit # value:
Let’s say a business buys cloth, thread, zippers and buttons for $80, pays $10 for labour to produce a shirt and sells it for $100.
Cost of materials $80
Cost of Labour $10
Sales Price $100
Value Added = $100 -$80 = $20
Profit = $100 - ( $80 + $10 ) = $10
Activity 1.5
To-Do-List:
Case Study - Making Leather Bags and Belts in Ethiopia (p. 18)
September 8, 2021
Chapter 1 - Business Activity
Week 2
Lesson 4
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