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Where's Your Value Added?

© Bert Markgraf

For any business, the most important thing when presenting its products to a market, is value. Customers will not buy anything if they aren't convinced the product has value to them. Value is linked to cost, quality and service but it doesn't depend on any one of these. A company can try to practically give away a product that costs a lot to make and is of top quality but if it has no value to the target market, nobody will be interested.

In the supply chain, every member adds value until the last link presents it to the target retail market in such a way that it will sell. Small businesses tend to be positioned down towards the end of this chain because that's where the specialized niche markets, low volumes and diverse needs are. Small businesses will buy from suppliers, add value by changing or adding to the product and sell to their target market at a profit. While larger businesses can achieve profitability by adding little value across high volumes of product, small businesses have to add considerable value to make money on the relatively low volumes that they can handle.

And there's the problem. Many small businesses don't add enough value to justify the price they have to charge. Ask yourself this question: "If my customer bought his products directly from my suppliers, could he save money?" If the answer is yes or even maybe, you have a problem. The foundation of your business is not greater efficiency, saving your customer money. It is knowing where to buy - not a great base for long term business success.

The solution is to increase your value added; to increase the value of your product to your customer. This can be achieved in two ways.

1. You can do more and charge more.
If you can identify something which your customer will value greatly but which will not cost you a lot to do, you can add to your product, charge a little more and increase your value added substantially.

2. You can do less and charge less.
If you can identify something which is of no great value to your customer but which costs a lot to provide, scrap it and charge a lot less. This will increase the value of your product to your customer (essentially the same product as far as he is concerned but much lower cost).

Many small businesses have never done such an analysis and are spending lots of their money doing things their customers don't really value. On the other hand, they aren't doing things which could make their products much more valuable to their customers while costing comparatively little. Many small businesses have the ability to do such an analysis on an individual customer basis while most large corporations can't. Just one more thing which puts small businesses ahead of their large competitors if they put in the effort.

The copyright of the article Where's Your Value Added? in Small Business is owned by Bert Markgraf. Permission to republish Where's Your Value Added? in print or online must be granted by the author in writing.