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Add value to your marketing.

The concept of value-added marketing has been around for a long time, but many organizations may not be sure if it can bring any direct benefits to them.

As its name suggests, valueadded marketing is the concept of taking some existing product or service and adding value to it. The value may be real or perceived, but in either case, its addition usually allows the producer or seller to charge more without comparable increases in cost.

A classic example of value-added marketing can be found in any socalled luxury automobile. The basic frame and structure of the car is the same as for much lower-priced models, as are many of the engine and operational parts. What adds value are the luxury touches: the on-board computer, power windows, leather seats and so on, which can be added to the basic car at a cost of only a few thousand (some a few hundred) dollars, yet resold for many thousands more. It's no secret that the most profitable models for any automaker are the luxury cars in its line up.

What counts here is that the customer not only gets some real value added but also a substantial amount of perceived value. And it's the perceived value, the satisfaction and return the customer believes he or she derives that allows the manufacturer to charge proportionately much more than the cost of the value tacked on.

A classic example of value-adding was found a few years ago, when a local manufacturer of pottery milk jugs could not sell them. They were well crafted, with clean lines, and they could hold exactly one litre of milk -- the plastic bag slid in snugly. They were distributed in all the best craft and home appliance stores, but no one bought them.

Then, the enterprising manufacturer realized that he had to add value. So, hepainted a decoration (a flower, a handcart, a basket, etc.) onto each jug. These simple transfers cost him only a few cents, but they spurred sales tremendously. Customers got real value from the jug and some perceived added value from the tastefulness and beauty of the design.

Obviously, value-adding can be done when a product is qenuinely improved. Almost all consumer items such as soap flakes, toothpaste, non-prescription drugs and others are sold on the basis that they are constantly new and improved. As long as this claim can hold up under close technical and legal scrutiny, it gives the manufacturer a very valid opportunity to charge more: getting a higher return for the product than the basic cost of adding the value.

But, in many cases, intangibles provide major value-adding opportunities, and those that capitalize on this fact of consumer behaviour usually find that they can substantially increase profit margins with almost no extra overhead costs.

Name and reputation are among the strongest value-adding mechanisms known to marketers; not just because they provide the chance to charge customers for the privilege of using them (such as the Hilton Hotel chain or the great fashion houses on Los Angeles's Rodeo Drive) but because, in a very real and tangible sense, they usually bring with them financial security and strong cash flows.

In an article entitled "The ValueAdding CFO" in the January-February 1990 issue of the Harvard Business Review, Gary Wilson, chief financial officer for Disney says, "Disney's cash flows can be projected with relative certainty for a much longer period of time than, say,... a disco or restaurant concept. (They) may be unique and popular, but how long can you project those cash flows before the fad dies? Mickey Mouse has endured for 60 years."

Probably one of the very best examples of value-adding in the service industry is the Four Seasons hotel chain, where the basic concepts of food, shelter, security and convenience offered by almost every hotel, have been enhanced and refined by numerous small, service driven touches that set the Four Seasons a cut above its competition.

Yet Izzy Sharp, the majority shareholder, is the first to admit that very few of these small touches cost real money. Most are built around the consistent, ultra-disciplined application of the principle that every little thing must be done exceptionally well. Customers not only get real value (great service) but perceived value (the hotel thinks I'm special) for which they are willing to pay.

In the States, credit unions have been battling for market share for years. Many are undertaking a program called M.O.S.T. (Member Oriented Service Training), which is all about adding basic value to any transaction right at the teller's desk. Thus M.O.S.T. concentrates on customer recognition, excellent client profiles, cross selling whenever appropriate, good manners, follow up on complaints and concerns: all the little things done consistently well, no t just as an end in themselves but because they give a credit union the value-added edge. Customers perceive that they get -- and do get --better value for their transactions than they might in a comparable financial institution.

Value-adding often takes place when two or more organizations join together to create new value where less existed before. Travel packages are an excellent example of this, where airlines, hotels and resorts combine their own strengths with others to create a value-added travel holiday which they could probably not offer on their own. Charities and corporations have discovered the many value-added benefits of working together. The company benefits in tangible, goodwill ways from its association with the charity which, in turn, usually can provide more to its recipients because of the association.

Retailers used to say that success in retailing boiled down to three words: location, location and location. Those days may have gone, but certainly an excellent location adds value to anything you do. If you have a corner store on Rodeo Drive (not likely, but dream) you can bet that your gum, newspapers and other miscellany will all command higher prices than if your location was on a windy corner in suburbia.

The same is true of distribution networks. It may be more expensive for you to deliver all your goods with your own drivers and vans than it would be to contract this out. But if clients perceive they get real value from the personal aspect of dealing with your people, in your transportation, then the extra cost may be worth it, especially if you can charge extra for this distribution network.

You can take almost any product and service and add value to it, if that meets your marketing requirements. Birks, the jewellery empire, long ago learned the added value its famous blue boxes represent. In the ultra-competitive fast food business, Wendy's is carving out a market niche by positioning itself as an eatout option with real value (nutrition, variety) added to its offerings.

So, take a look at products and services that may have been snoozing along for a while. Can you revitalize them -- and the profits they generate -- by adding value to them? Remember that in so doing, you must also take a hard look at all the marketing associated with them. If your client base cannot perceive that you have added value and understand what is in it for them, they still won't buy the product. So add value not only to your product, but to every marketing message associated with it.
COPYRIGHT 1992 Canadian Institute of Management
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Barrow, Peter
Publication:Canadian Manager
Date:Mar 22, 1992
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