Value Added – Definition

Cite this article as:"Value Added – Definition," in The Business Professor, updated May 21, 2019, last accessed June 1, 2020, https://thebusinessprofessor.com/lesson/value-added-definition/.

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Value Added Definition

Value added refers to the extra features a company may add to products or services to give it a sense of increased value in order to promote the uptake of the products or services.

A Little More on What is Value Added

Value added to a product may involve a company taking a product that is considered similar to competitor’s products and enhancing it by either changing the product design or providing extra accompaniments primarily to increase consumer perceived value.

Also, it can be defined as a change in the physical form or components of products or services offered in order to similarly promote sales due to increased perceived value.

For example, a jewelry shop may display its range of jewelry products in attractive displays and offer gift wrapping as an after-sales services which may entice customers to willing pay high premium since the product or service appear to be of higher quality.

Value can be added by either providing better or extra services in the form of after-sales services as well as better customer support or by an employee or contractor, bringing unexpected advanced skills to a job.

Value addition can be said to be the increased utility created by a company to its consumers or clients. It can apply to a company’s products, services, management, and other areas of business.

The goal of every business entity is to increase their sales and revenues as much as possible while minimizing the production costs – thus leading to higher profits and margins.

A company may market value-added features to justify the resulting pricing of the product or services.

Even More on What is Value Added

Value-added is a concept employed in other contexts as well.

Economics – Value added per industry to the overall GDP is the total revenue generated by the specific industry less the expenses incurred within the reporting period which is typically twelve months.  The government looks at the value-added and may tax the same to generate revenue; such taxes are known as a value-added tax.

Accounting – Value-added costs are the expenses that a company has to incur in order to provide their consumer with value. Cost accounting seeks to identify this value added and aims to keep it to a minimum in order to maximize profits. For example, for a manufacturing entity, value added costs may include; machinery maintenance costs, labor, raw materials, and other expenses.

Academic Research on Value Added Principal (VAP)

New evidence on the value additivity principle, Burns, M. R. (1987). Journal of Financial and Quantitative Analysis, 22(1), 65-77.

Analysis of Incentives and Quantification of Benefits in’Project Based Value Added Networks’, Winkler, H., Schemitsch, H. B., & Kaluza, B.

Business climate, taxes and expenditures, and state industrial growth in the United States, Plaut, T. R., & Pluta, J. E. (1983). Southern Economic Journal, 99-119.

Investment Decisions in New Generation Cooperatives, Puaha, H., & Tilley, D. S. (2003).

Report on the Workshop on Value Added Tax, Rao, R. K., & Aggarwal, P. K. (1999).

Evaluating international projects: an adjusted present value approach, Lessard, D. R. (1981). In Capital Budgeting Under Conditions of Uncertainty (pp. 118-137). Springer, Dordrecht.

Economic analysis of the US Department of Agriculture’s valueadded producer grants program, Oswald, D. J. (2008). (Doctoral dissertation, Kansas State University).

Barriers and facilitators to knowledge capture and transfer in project-based firms, Hall, J., Sapsed, J., & Williams, K. (2000, February). In 4th International conference on technology policy and innovation, Curitiba, Brazil.

Export performance and state industrial growth, Erickson, R. A. (1989). Export performance and state industrial growth. Economic Geography, 65(4), 280-292.

How can firms in the UK be encouraged to create more value, Edwards, T., Battisti, G., McClendon, W. P., Denyer, D., & Neely, A. (2004). London Business School: The Advanced Institute of Management Research.

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