Business – 1.1 Enterprise – The nature of business activity | e-Consult

Model Answer:

When a firm successfully adds value, it can justify a higher price point because customers perceive greater benefits. This often leads to increased profit margins and can create a price premium over competitors.

Example – Apple Inc.: Apple adds value through sleek design, an integrated ecosystem, and superior user experience. As a result, its iPhone models are priced significantly above many Android alternatives, yet consumers are willing to pay the premium because they value the added features and brand reputation.

Consequently, adding value enables a firm to shift from a cost‑plus pricing approach to a value‑based pricing strategy, aligning price with the perceived benefits rather than just production costs.