Added Value Flashcards
Added Value : Definition
Making the value of the finished good greater than the cost of the inputs
Added value : equation
Selling price - inputs
Two ways of increasing added value :
Make it more desirable and reduce costs (efficient procurement and efficient use of inputs)
How to add value :
Through a brand name, through a unique product, outperform rivals.
Why to add value : (benefits)
Able to charge higher price, customer loyalty, gives a usp ( difference with competitors), benefits stakeholders and protection if competitors have lower price.
Competitive advantage : definition
The advantage that a firm has over its competitors which allows it to attract and retain more customers than its rivals and therefore greater sales and profits.
Two main types of competitive advantage : cost advantage
If a firm has a cost advantage it can charger lower prices and gain a larger share of the market.
If a firm with cost advantage charges similar prices to its rivals, it will make a larger profit on each sale.
*( lower cost doesn’t mean inferior quality or charging competitive prices)
Cost advantage : definition
Refers to the ability of a firm to produce a good or service at a lower cost than its rivals.
Why firms benefit from cost advantage:
Have economies of scale, economies of experience or superior technology.
How to reduce unit cost :
Use cheaper social media for marketing , r & d into new products, uptodate technology.
Cost advantage : pros
It’s cheaper ie increase sales , same price ie higher profit margin.
Cost advantage : cons
Consumers doubt quality, ‘me too’ products and hard to make a profit.
Two main types of competitive advantage: differentiation
A firms ability to separate itself and its products from that of its main competition and therefore make its offering more attractive to target market.
How to differentiate :
Create a usp and create a strong brand ie loyal customers and premium price can be charged.
Differentiation: pros
Consumers willing to pay high price
