What Value?

In one of my earlier posts, I mentioned the idea of Value Added, the basic concept of taking some product or substance and doing something with it that makes it of greater value to the consumer (see my post on Value Added here). It’s a critical way of differentiating a commodity product, as well as a very clever way of making more money using marketing savvy. There are two problems associated with the concept, however: spending so much on adding value to your product that you can’t make money on it any longer, and offering a product that is not, in fact, of any tangible increased value. In either case, your efforts are not likely to prosper.

Fortunately, the first problem rarely comes up in business, because most people are capable of realizing that it you are making less on a product than your cost to produce it, you will not be able to make up the shortfall on volume. The exceptions here are found in add-on sales (as with a computer system, where most of the profit is actually made on the peripherals and software) and loss leaders (where the profit is to be made by getting people into the store and selling them anything else). Some of the popular video game systems (Xbox is a good example) essentially do both; the base units are actually sold at a loss because customers will then be more likely to purchase additional game cartridges, which is where the real profit is made.

It’s the second problem where things get a bit peculiar. A while back, Wired ran a piece about what they called the “Lamest ‘Value-Added’ Products,” including such winners as Ice Rocks - a tray of ready-to-be-frozen ice cubes, just add refrigeration, and my personal favorite, Bling H2O -- spring water marketed in really swanky bottles at a 4,000% markup. Yes, you read that right; 40 times what a bottle of the same water would cost you without the packaging or hype. None of these products offer the consumer any real value, not even the advantages of superior flavor or mineral content.

Of course, some analysts would point out that Status is a form of added value in itself, but here I must caution the reader that it is very rarely enough to compensate for products that are not an inherently good value. When the legendary quality of Mercedes-Benz vehicles began to slip, so did the company’s sales, to take only the obvious example. People still acknowledged that these cars had high name recognition and pleasing aesthetics, but so did many other luxury cars, some of which also had better mechanical reliability and lower maintenance costs – hence, better value for the money. In recent years the company has been spending huge amounts of money on advertising campaigns trying to re-establish their reputation of technical superiority, and (more to the point) plowing R & D money into actually making better vehicles.

If your business is based on a Value Added strategy, it is vital that you continuously monitor not only whether your product offers a good value to the consumer, but also whether your competition has started offering a better one. And if you are not using Value Added to increase your consumer appeal – maybe you should look into it. I’d be careful to avoid the two problems, of course…