central purpose of business activity Flashcards
what do business’ do
business’ exist to transform inputs or resources into goods and services
what is added value
increased worth that a business creates for a product
Outcome of a business adding value
the value of the finished good is greater than cost of input
the product/service is more desirable to consumer ( unique selling point or loyalty cards)
what is the equation for value added
value added = selling price - bought in goods and services
what ways can a business add value non financially
building a brand (high reputation)
delivering excellent service
product features
(additional functionality
what are the benefits of a business adding value
can charge a higher price
creating a point of difference from competition (USP)
focusing business more closely on its target market segment
what are the disadvantages of adding value
its not guaranteed that it will turn out profitable
competition may make it harder to increase the price
what is competitive advantage
refers to the advantage that a firm has over competitors which allows it to attract and retain more customers
what is cost advantage
when a business is able to produce and sell its products at a lower cost than competitors
how is cost advantage achieved
producing goods and services at. lower cost
economies of scale
what are strengths of cost advantage
increased sales and market share
is possible to charge same price as competitors but maintain profit level
what are disadvantages of cost advantage
customers doubt quality
hard to make profit as prices are so low
what is differentiation advantage
create perception that its products are better than rivals
what are the methods of differentiation
through reputation
through customer service
through value for money
benefits of differentiation strategy
charge higher prices as customers willing to pay more
with usp its easier to launch new products
