c Which of these is not in the tertiary sector? Q1 A B C D Banking and Insurance Online Publishing Cement Production Law and Accountancy

c The process of declining manufacturing in developed economies is known as: Q2 A B C D Nationalisation Privatisation Deindustrialisation Outsourcing

c Which of these is in the primary sector? Q3 A B C D Vehicle Assembly Pharmaceutical Research Crop Production Legal Services

c An automotive business like Jaguar Land Rover operates mainly in the: Q4 A B C D Primary Sector Tertiary Sector Public Sector Secondary Sector

c Which sector is usually biggest in developed economies like the UK and USA: Q5 A B C D Primary Sector Tertiary Sector Financial Sector Secondary Sector

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

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 Formula Added Value = price of finished product-cost of raw materials

Added Value Mental Maths—Calculating Added Value A Nidderdale farmer grows carrots. It costs him 2000 pounds and he sells them at the wholesalers for 4000 pounds. How much value has been added. Dodgy Dave’s 2nd Hand Car garage buys cars at auction for 50,000 pounds. He has to have 5000 pounds worth of work done on them and then sells them for a total of 100,000 pounds. How much value has been added?

Sources of Added Value Businesses can add value to their product/service by doing something with the raw materials and providing something ‘different’. Task Make a spider diagram with all the different ways you can think of that a business can ‘add value’

USP (unique selling Point) Branding Speed Convenience Design Quality Sources of Added Value

Sources of Added Value Think of all the reasons why a business can sell a product or service for more than what they paid for it in the first place. Quality Speed of Service Design Branding Unique Selling Point (USP) Convenience

How does Bob add value????

Inputs and Outputs Inputs Outputs Transformation Process Transformation Process The transformation process describes what happens inside the business. This is where value is added to inputs to create outputs

INPUTPROCESSOUTPUT What’s involved with adding value? Land £18,000 Wood £2,500 Bricks £3,000 Tiles £1,500 Other materials £4,000 Glass £1,000 Frames £1,000 Plumbing Brick laying Roofing Digging Joining Painting Finished new house Added Value = £58,000 £31,000£89,000

Example of Added Value Ingredients purchased Ingredients made into a chocolate bar Chocolate bar sold to customers 30p per bar + 20p per bar 1.20p per bar Value Added = 70p per bar of chocolate

Example of Added Value Ingredients purchased Ingredients made into a meal; café furnished Meal sold to customers £3 per meal + £6 per meal £15 per meal Value Added = £6 per meal

Importance of value added Every business must add value to survive and be successful The higher the added value, the more likely it is that a business will survive, grow and be successful in the long term

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 2,000 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… x.php/business- studies/comments/adding-value- turning-waste-into-gold x.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?

Adding Value through Production: People place a higher value on a television set than on the bits and pieces used to make it. Build: Mercedes, BMW and Sony not only benefit from good design but also build quality. Customer service: After sales service, warranty, availability. Marketing: Gaining better understanding than competitors of Customer Needs and through a USP.

USP – Unique Selling Point A feature of a product / service that allows it to be different from other products. Increase “Loyal customers”, “Sales Volume”, “Price” Can improve peoples desire for a product and thus add value, e.g. Coffee, people pay a lot more for the Coffee than the ingredients it took to make it.

How to create a USP Brand Names: have persuaded customers that certain coffees are superior to others. Images: created by advertising, e.g. “Lynx deodorant will make girls attracted to you” “Gold Blend image makes people want to relate to it” Packaging: may enhance perceived quality. Service Provided: People prepared to pay a lot more for the same meal in a restaurant than a take away. Pay a lot more for a coffee in Starbucks because of its attractive environment. Note: Partially as a result of this Marketing Activity Coffee is now the UK’s 2 nd largest commodity after Oil

Aero vs Dairy Milk Nestle Aero46 gramsPrice: Cadbury’sDairy Milk49 gramsPrice: Which Chocolate bar has the most added value? What makes this chocolate bar have a higher 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 Demand being maintained over time Advertising and publicity of USP What does the maintaining of a USP depend on?

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

1 Explain one reason why personalising T-shirts might be an effective way to add value (10 marks)

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.