Added Value AS Business Studies

Aims and Objectives Aim: Understand Added Value Objectives: Define Added Value Calculate added value Analyse methods of adding value Evaluate the factors needed to maintain a USP

What do you think added value means? Starter What do you think added value means?

Added Value Added Value = the difference between the price of the finished product/service and the cost of the inputs involved in making it.

Added Value Example Sales Revenue 1,000 units sold for £20 each = £20,000 revenue Costs To make 1,000 units Raw Materials - £7,500 Labour - £5,000 Other production costs - £2,500 Total Costs = £15,000 Added Value £20,000 less £15,000 = £5,000 Added Value

Calculate Added Value For 2000 Units Sales Revenue 2,000 units sold for £30 each Costs To make 1,000 units Raw Materials - £8,000 Labour - £5,000 Other production costs - £4,000 Added Value

Added Value Example Good quality potatoes make great potato chips or crisps. But what do you with the smaller or mis-shapen potatoes which fail the raw material quality test for a premium crisp brand? Simple, you use them to create a premium brand of vodka… http://www.tutor2u.net/blog/index.php/business-studies/comments/adding-value-turning-waste-into-gold

Ways of Adding Value What methods can you think of to add value? In other words, what would allow you to charge a high price and cut costs to increase added value?

Ways of Adding Value Build a successful brand Deliver great customer service Add product features customer want Operate efficiently Offer convenience and speed Have a unique selling point (USP)

Unique Selling Points (USP) A characteristic of a product that makes it different from other similar products being sold in the market such as design, quality or image. One of the best ways to add value! How many product’s USPs can you think of?

The Importance of a USP What may be the benefits of having a USP? A way to differentiate compared with competitors Don’t have to compete on price Higher profitability

USP Evaluation Reaction of competitors What does the maintaining of a USP depend on? Reaction of competitors Demand being maintained over time Advertising and publicity of USP

Benefits of Adding Value What may be the benefits of having a USP? Charge a higher price Create a point of difference with competitors Focuses business on its target market segment

Signs That a Small Business Is Adding Value Strong gross profit margins Gross profit/Sales A strong signal Repeat Business Sign of satisfied customers Suggests customers feel they are getting value for money Good brand or name recognition Important for word of mouth recommendation

Plenary Quiz Define added value. What is the formula for calculating added value. Explain three methods of adding value. Define a USP. What does the maintenance of a USP depend on? Give two signals that a small business is adding value.