Central Purpose of Business Activity Flashcards
what is adding value?
is the process of increasing the worth of raw materials by modifying them
what are the aims of adding value?
add value in production process to the inputs to create an output that can be sold at a profit
adding value means making the product more desirable to consumers
how do you increase added value?
introduce new or improved products and services that provide even greater value to customers
reduce the cost of bought in items
benefits of adding value
charge at a higher price
create a point of difference with competitors
focuses business on its target market segment
what is competitive advantage?
is the advantage that a business has over rivals who are competitors. It occurs when a business has an attributes allowing it to out perform its competitors
it allows a business to attract and retain more customers than its rivals and therefore generate greater sales and profits
two ways to gain competitive advantage
cost advantage
differentiation
what is cost advantage?
this is where a business attempts to produce goods or services at a lower cost than its competitors
what is differentiation?
where a business tries to make a product that is seen as unique and superior by customers
sources of cost advantage
economies of scale
economies of experience
superior technology
economies of scale description
larger businesses are able to lower their average costs of production and therefor gain competitive advantage over their small rivals
by buying their raw materials in bulk they may find it easier to secure credit at competitive rates of interest
economies of experience description
a firm can accumulate significant experience of operating in an industry which can result in being able to produce high quality goods and services in an efficient manner
its also called a learning curve
superior technology
able to source the most up-to-date capital equipment to use it to produce goods and services effectively
advantages of using cost advantage
can gain significantly from economies of scale
likely to be popular and effective strategy in recession
smaller companies cannot simply complete on cost so their market share is there for the taking
disadvantage of using cost advantage
profits may be reduced if prices are also lowered
product quality may be compromised if costs are reduced too much
can lead to greatly increased competition in the market as all firms strive to cut costs
sources of differentiation
creating a unique selling point
creating a strong
