1.3b Added Value Brollies

Question 1

What is added value?

Answer 1

Added value is the amount by which the value of a product has risen as a result of a person’s or firm’s part in producing a good or service.

Question 3

How can a business add value?

Answer 3

A business can add value to its product by lowering variable costs or adding something that will make customers willing to pay a higher price.

Question 5

What is a USP and how can it add value?

Answer 5

A Unique Selling Point can add value to a product. It will help a business to compete. Developing a USP can be aided through understanding customer needs and market mapping.

Question 6

What are the benefits of adding value?

Answer 6

The added value of a product goes towards paying off a company’s fixed costs. The higher the added value, the sooner costs can be paid off and the quicker a business will make profit.

Question 7

What are the knock-on effects of added value?

Answer 7

The more value a business can add to its products, the more chance a business has of success, survival and long term growth.

Question 8

What makes a successful product?

Answer 8

The most successful products are the ones that are able to keep the costs down as they add new features or benefits.

Question 9

How does a company create an appeal to their audience?

Answer 9

They conduct customer research before they add value, understanding customer values, to tempt them to buy.
Retailer research is conducted to see what is liked by customers but is hated by the trade and reviews.

Question 10

Exam question:
Which one of the following is the most likely reason why a business would try to add value to its products?
A - To increase the materials is buys
B - To add a USP
C - To improve its chances of survival in the long term
D - To differentiate its product

Answer 10

C - To improve its chance of survival in the long term

Question 11

What ways can value be added to a product?

Answer 11

• Branding
• More convenience
• Better design
• Improved quality
• USP
• Greater speed of service

Question 12

Case Study: Umbrolly

How did Umbrolly add value?

Answer 12

• Branding: they advertised on billboards in train stations etc.
• Convenience: if it is raining and you do not have an umbrella, Umbrolly is helpful due to being sold in easily accessible vending machines.
• Quality + design: disposable umbrellas mean they can be thrown away once used, but used a few times at least.
• USP: very cheap, only £2 compared to other umbrellas which are £7.

Question 13

What are four ways to add value?

Answer 13

• Buy branding: it is often achieved through advertising
• Convenience: two forms of convenience are the convenience of shops closer to you and shops close and pay more
• the quality and design of the product: better quality means more money paid for the product
• a USP: something that stands out from other competitors

Question 14

What is the definition of added value?

Answer 14

Added value is the increase in a product’s value as a result of a business producing that product / the difference between the final price and the cost of the production is the added value

Question 15

How is branding a key factor in adding value?

Answer 15

• it is a way of defining the business, not just a business’s logo or strapline
• its aims and values are in a way that can be communicated to consumers
• branding can also create a lot of customer loyalty

Question 16

How is convenience a key factor in adding value?

Answer 16

• adds value to product and encourages customers to be brand loyal
• businesses can make their products easy to pay for
• allows business to be available for example a small newsagent can offer longer hours on Sunday

Question 17

How is quality and design a key factor in adding value?

Answer 17

• building a reputation for quality can add great deal of value to products
• well designed products not only looks professional but also communicates business’s values and can encourage consumers to buy from that business
• innovative designs ,ay be used to improve a product and attract consumer attraction

Question 18

How are unique selling points a key factor in adding value?

Answer 18

• encourages consumers to buy a business’s service/product rather than going to a competitor’s
• potential USPs include price, quality and being first to market (they spotted a gap in the market etc)

Question 19

Exam question: Explain why added value is not the same as the profit earned by a business

Answer 19

• Added value is the difference between sales revenue and the direct costs of satisfying that demand - i.e. the value (that is effectively added to the cost of the
  inputs into production)
• Profit is the difference between sales revenue and ALL costs of a business. I.e. it includes costs (overheads) not directly related to the production process (e.g.
  admin, marketing)
• However, added value is a source of profitability - it contributes to the overall profit earned by a busines

Question 20

Exam question: Using a real life example, describe how branding can be used to add value?

Answer 20

An example would be buying Marks and Spencer food. Branding is the image that is often associated with the product. Consumers know it is good quality by the branding. The selling price could be higher due to the quality of branding.

Question 21

Exam question: List up to three ways in which a hotel could improve its added value

Answer 21

• Selling additional room services to guests
• Improving the productivity of the hotel restaurant
• Improved customer service enables the hotel to increase room occupancy

Question 22

What are the advantages of added value?

Answer 22

• Charging a higher price
• Creating a point of difference from the competition
• Protecting from competitors trying to steal customers by charging lower prices
• Focusing a business more closely on its target market segment