Adding value to products and services

by Business Case Studies on Tuesday 1st March, 2011

A rare diamond has been put on display at the Natural History Museum in London. The stone, called the Sun Drop, is a bright yellow diamond and is the largest of its type in the world. It is on loan from the diamond manufacturer Cora International. One can only speculate about the price of the diamond as the Chief Executive of Cora International, Suzanne Gomes, has said that the value of the stone is currently undetermined. However, the value will be affected by a number of factors. The size of the diamond will certainly play a part – most of those used in jewellery weigh less than five carats whereas the Sun Drop is a massive 110 carats. Also, the unusual yellow colour, caused by traces of nitrogen within the carbon structure, sets it apart from the more common white diamonds. For the Cora diamond, the process of transforming a rough diamond into a cut and polished stone is perhaps the factor that has added the most value. Mr Hart of the Natural History Museum commented that 'the real value of these gems is that they're exceptional, they're one-offs'. (BBC, 24th February 2011)

For Warburtons, every step of its supply chain aims to meet the needs of customers and, in turn, add value to its products. Added value is the difference between the cost of inputs and the price customers are willing to pay. A business can add value in a number of ways, such as through the use of a unique selling proposition (USP), through promotional campaigns or through its supply chain. For Warburtons, value is continually added through the chain of production. It involves working with farmers to ensure a sustainable supply of high quality wheat, turning wheat into finished baked goods and ensuring products are delivered fresh and on time to the retailers.

Questions
1.Define added value.
2.List the ways that firms can add value to products.
3.Explain why it is important for firms to add value.
4.Using the article and case study, analyse the different ways that Warburtons adds value to its products. Try to link these to the factors you identified for question 2.

Answers
1.Define added value.

  • Added value is the difference between the cost of producing a product and the price the customer is willing to pay for it.

2.List the ways that firms can add value to products.

  • Production processes – turning raw materials into a useful product which fulfils a function
  • Quality – higher quality products and services can command higher prices
  • Brand and designer names – customers often associate brands with quality and are more likely to pay a premium for designer goods.
  • Unique selling point/proposition (USP) – these differentiate products from those of other suppliers
  • Associated services such as warranties and help lines
  • Design – well designed products can either improve functionality, make products more aesthetically pleasing or stand them apart from competitors' products
  • Marketing – effective marketing can encourage customers to buy products for higher prices
  • Convenience – customers may pay more for convenience e.g. at a local shop than at the supermarket
  • Values – if an organisation appears to have the same values as the customers then value may be added e.g. not testing on animals

3.Explain why it is important for firms to add value.

  • Firms need to add value to ensure they are maintaining or increasing profit margins. Profits can be used to reward investors or can be reinvested into the business, e.g. for expansion.

4.Using the article and case study, analyse the different ways that Warburtons adds value to its products. Try to link these to the factors you identified for question 2.

Answers may include:

  • Ensuring high quality raw materials, such as wheat, are used in production (Quality)
  • Efficiently, turning the raw materials into finished baked goods (production)
  • Appropriate packaging that keeps the product fresh (Quality)
  • Delivering to places that are convenient for customers to purchase from (Convenience)
  • Delivering on time so retailers do not have empty shelves (Convenience)
  • Using sustainable methods and materials (Values)
  • Having the trusted Warburtons premium brand name (Brand)
  • Promotional campaigns such as those of television (Marketing)

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