Effective Marketing makes it possible to make customers pay the price for a product that exceeds the cost of raw materials used to produce it. This is called adding value through Marketing activities.
Marketing is the process of creating, pricing, promoting and distributing products as well as ideas to build and maintain positive relationships with customers. It requires analyzing customers’ current and long-term needs and wants to develop satisfying goods and services.
Value-driven Marketing
Customer value means the customer’s subjective assessment of all the benefits comparing with all the costs in determining the worthiness of a product. We can visualize it using a very basic formula for customer value:
Customer Value = Customer Benefits – Customer Costs
The customer benefits include anything desired by the customer that is received when purchasing the product, for example convenience, functionality, prestige, social status, security, etc.
The customer costs include anything that the customer gives up in an exchange for receiving those benefits, for example monetary price (money), search costs such as time and effort spent, financial as well as social risks associated with purchasing and owning the product, etc.
What is added value?
All business organizations aim to create that desired value for customers. In this way, businesses can sell products for a much higher price than the cost of raw materials cashing in the difference.
Mathematically speaking, added value is the difference between the selling price of a product and the cost of the raw materials and components bought in to make it:
Added value = Price – Cost of raw materials
Added value is the additional amount of money that customers are willing to pay on top of the cost of raw materials for getting something done that they are not willing to or not able to do by themselves. Hence, customers are willing to pay much higher price for greater value. The more you get done for your customers, the more they will be willing to pay you.
For example, a fast food restaurant sells chicken hamburgers for USD$5. The cost of purchasing from the supplier all ingredients used to make that hamburger such as chicken, bread and vegetables is USD$3.5. Then, the added value equals to USD$1.5. The customers are willing to pay USD$1.5 added value for the convenience of the restaurant preparing hamburgers for them instead of the customers cooking by themselves. Either because they do not have time to cook or they do not know how to do it.
How can Marketing add value?
Let’s take a look in details at a number of specific marketing strategies in which a business can add value for its customers.
1. Adding value by Branding
The company’s marketing department will build a certain image into its products through name association and presentation awareness. Personality links seek to maintain product and corporate recognition among the people. The products will then become a must-have brand name for customers who will be willing to pay a premium price. By branding and promoting the products in a way to develop a particular image, the company will stand out in the eyes of consumers. They will be more willing to buy the branded products rather than no-name products even if the actual raw materials are almost the same as in those used for other brands. It is because in addition to purchasing the product itself, customers buy something else – the association with the brand, certain image, feeling, social status, etc.
— For example, a car from Mercedes-Benz, a bottle of Cola from The Coca Cola Company, an ice-cream from Häagen-Dazs, a pair of jeans from Levi’s, a pair of shoes from Nike.
2. Adding value by Product Design
The company’s marketing department will spend time and money on designing the products – their aesthetic appeal. The product design includes features such as layout, shapes, colors, patterns as well as placement of logos, trademarks and copyrights. In addition to that, customers also look for other things which are inherent in the design such as the convenience, usability, functionality, reliability, performance, quality, etc. Usually, Marketing Managers will try to achieve balance between appearance of the product, its functions and the overall profitability of the business. The prototype of the product will usually first go through the test marketing stage before full scale manufacturing and final market launch can be executed. It is often done to make sure that customers like the design. Good design plays such an important role in sales that it cannot be underestimated. Very often improved design or redesigns of products can lead to increased sales and growth in market share.
— For example, a computer from Apple, a vacuum cleaner from Dyson, a woman’s handbag from Louis Vuitton, a car from Porsche.
3. Adding value by Product Features
The company’s marketing department will make the product look different from competitors’ products by focusing on specific features that will make the firm’s product more recognizable. Marketers will create a Unique Selling Point (USP) that clearly differentiates a product from that of other producers of similar products. Product differentiation can lead to sales success. It is because making a product distinctive so that it stands out from competitors’ products in consumers’ perception. Hence, customers will be buying something unique that no other company sells.
— For example, a game console PlayStation from Sony, a smartphone from Apple, a camera from Nikon, a Swiss army pocket knife from Victorinox.
4. Adding value by Physical Environment
The company’s marketing department will create a unique shopping experience to serve customers in high-quality environment. Receiving this exclusive treatment will make them feel that they are important to the company. Physical evidence can be provided through luxurious decorations, spotless upkeep of the premises such as retail outlets, product showrooms or company office space, cleanliness, low level of noise, appealing aroma, relaxing music, etc. All of these tangible conditions will make customers feel more prepared to pay higher prices. Being served in such comfortable environment will have the psychological effect on convincing them to purchase the product, and come back in the future.
— For example, a cup of coffee at the Starbucks coffee shop, a meal at Gordon Ramsay’s restaurants, a trip to Disney park, furniture shopping at the IKEA stores.
5. Adding value by Convenience
The company’s marketing department will create the good or service that helps customers do things more conveniently – easier, faster, simpler. Convenience is usually achieved thanks to new technologies that enhance the shopping experience and improve the usability of the product. Convenience may also be embedded into the shop layout, defined by ease of access to the premises or even how things are arranged in the outlet or restaurant.
— For example, mailing a letter or package by FedEx, online shopping at Amazon or Taobao, ordering fast food meal on the touchscreen at the McDonald’s restaurant, online payments by a debit card or credit card from Visa or Mastercard.
6. Adding value by Packaging
The company’s marketing department will use high-quality packaging to differentiate the product from the products sold by competitors. Through packaging, the firm can promote all the small things that make the product distinct from competitors. In addition to differentiation, the company can also make it easier for customers to notice the packaging from a distance by using unique colors, patterns or shapes. The quality of packaging can be a major influencer in purchasing decisions as some customers relate to certain designs better than others. Packaging can also boost sales of the product when it is changed or redesigned adding freshness to something that the customers have become tired of. On another hand, any misfortunate or inappropriate packaging that does not fit into target customers can negatively impact sales revenue.
— For example, jewelry from Tiffany & Co., breakfast cereals from Kellogg’s, twist off beer bottle caps from Budweiser, liquid laundry detergent capsules Tide Pods by Procter & Gamble.
7. Adding value by Customer Service
The company’s marketing department will offer purchasing experience that stands out through customer care. This is achieved by providing a nicer customer service than competitors such as better in-sale and after-sale services. While in-sale services may be provided by competent and good-looking sales people, after-sale services will be added to new products and may include guarantees, long warranty, 24-hour free customer service hotline, home delivery, a range of financial services such as trade credit, etc.
— For example, the 5-year car warranty from Audi, Genius Bars at Apple stores, online banking by Bank of America, home delivery of grocery shopping by Walmart, fixing cars at the customer’s home by Tesla.
Finally, remember that added value is not the same as profit. It is because a business must also pay for other costs of running the business in addition to the cost of raw materials. Added value does not equal profit, but profit will be included in added value. When the business is able to increase added value, then the potential for greater profits will also increase.
