Value Added

What is ‘Value Added’

Value-added describes the enhancement a company gives its product or service before offering the product to customers. Value-added applies to instances where a firm takes a product that may be considered a homogeneous product, with few differences (if any) from that of a competitor, and provides potential customers with a feature or add-on that gives it a greater sense of value.

Explaining ‘Value Added’

A value addition can either increase the product’s price or value. For example, offering one year of free support on a new computer would be a value-added feature. Additionally, individuals can add value to services that they perform, such as bringing advanced financial modeling skills to a position in which the hiring manager may not have foreseen the need for such skills.

Strong Branding

Companies that build strong brands add value just by adding their logo to a product. Nike Inc. can sell shoes at a much higher price than some competitors, even though their production costs are similar. The Nike brand, which shows up on athletic apparel and uniforms of the top college and professional sports teams, represents a quality enjoyed by elite athletes.

Superior Service and Additional Features and Benefits

Buyers of luxury cars from BMW and Mercedes-Benz are willing to pay a premium price for their vehicles because of the ongoing maintenance programs that the companies offer.

Further Reading

  • The effect of venture capital financing on the economic value added profile of Nigerian SMEs – [PDF]
  • Predicting corporate bankruptcy and financial distress: Information value added by multinomial logit models – [PDF]
  • Economic Value Added as a measurement tool of financial performance – [PDF]
  • Financial performance in Finnish large-and medium-sized sawmills: The effects of value-added creation and cost-efficiency seeking – [PDF]
  • Venture capitalist governance and value added in four countries – [PDF]
  • Accounting in its social context: towards a history of value added in the United Kingdom – [PDF]
  • An analysis of financial performance using the EVA method – [PDF]