Central Purpose Of Business Actitivty

Question 1

What does adding value mean.

Answer 1

A business will add value to raw materials used in its production process so that there will be a significant difference between cost of purchasing raw materials and the selling price of the finished article.
This can also refer to the extra features of an item of interest (product, service, person) that go beyond the standard expectations and provide something more while adding little to costs

It is the difference between the actual price charged for a product or a service and the actual cost of all the components and assembly of the product or service . FOR EXAMPLE; selling price= £20m, cost of inputs= £12, value added= selling price-inputs= £8.

Question 2

What is a competitive advantage

Answer 2

This is a favourable situation that a business organisation has over its rivals arising from a marketing opportunity such as price, cost or both. This strengthens and positions a business better in the business environment.

Question 3

What is a percentage change equation

Answer 3

Change over original X 100

Question 4

What are the two types of competitive advantages

Answer 4

Cost advantage
Differentiation advantages

Question 5

What are cost advantage competitive advantages mean

Answer 5

This is the businesses ability to produce goods and services at a lower cost than its competitors.

Question 6

What is a differentiation advantage as a competitive advantage

Answer 6

This is where a business creates the perception in consumers minds that its product or service is better than its rivals. This can be achieved through a unique selling point and a strong brand.

Question 7

What does a lower cost enable a business to do (cost advantage)

Answer 7

• to sell at a cheaper price and therefore, sell more and gain a greater share of the market
• to sell at a price similar to competition and make a greater profit margins on each sale

Question 8

How does a business reduce costs

Answer 8

• utilising economies of scale and economies of experience
• using cheaper social media methods for marketing
• investing in up-to-date superior technologies
• investing in labour-saving robotic technologies
• sourcing cheaper suppliers without reducing quality
• research and development (R&D) into new products/services
• innovative products

Question 9

How does Ryan air cut costs as an example

Answer 9

• their flights operate throughout the day and night with twice as many flights as some competitors on their routes. This increases their use of airplanes which are expensive assets therefore, making them more cost effective
• the company buys one type of place as this reduces training costs for pilots and maintenance engineers
• it leases cheaper airports close to major airports but they are offer cheaper landing fees
• it removes business class seats allowing for more seats to be available for sale
• it provides online booking and greater use of technology for security and boarding.

Question 10

What are the benefits of a cost advantage strategy

Answer 10

Larger businesses usually aim for this
- there is an increased sales and market share since the sales price is lower
- its possible to charge the same price as the competition and maintain higher profit margins.

Question 11

What are the disadvantages of a cost advantage strategy

Answer 11

• customers can doubt the quality of a product due to such a low price.
• “me too” products can tempt customers away from established brand names.
• it can be hard to make profit while keeping prices low.

Question 12

What is a differentiation advantage

Answer 12

This can create the perception in the consumers minds that its product or service is better than its rivals. This is used more in smaller businesses through USP and a strong brand

Question 13

What is a unique selling point

Answer 13

This refers to the features or benefits of a product/service that set it apart from its competitions. It has to be a clear, distinctive and truthful product or service that attracts customers

Question 14

what’s an example of a unique selling point

Answer 14

• TOMS footwear has an ethical approach as every pair bought they donate a pair to a child in need
• fever tree tonic water as they market it as premium tonic eater unlike competitors who just label it tonic water

Question 15

What does branding refer to

Answer 15

This refers to a name, symbol or logo that makes a product recognisable and distinguishable from other businesses.
It is used to convince consumers that their product is different. Strong branding reduces the amount of direct competition because in the eyes of the consumer there is no direct substitute.

Question 16

What are the benefits of differentiation strategy

Answer 16

• firms can charge higher prices as customers are willing to pay more as they see no other direct substitute
• if a UPS arises, first mover advantage may be possible

Question 17

What are the disadvantages of differentiation strategy

Answer 17

• the strategy can be costly, and time consuming to implement
• there is a potential threat of competition from rival product ranges

Question 18

What’s an advantage of branding

Answer 18

• there’s a greater appeal and differentiation as the brand serves as a magnet as it stands out. They see the differences between the brands product and competitors and choose the branded products
• improved loyalty and customer retention employees, the brand name binds its customers to the brand and encourages brand loyalty and growth of the market share. It uses direct marketing activities to identify and target customers.
• employees motivation, employees may feel motivated in the workplace because of the prestige of the brand and therefore, work harder to ensure its success

Question 19

What’s the disadvantages of branding

Answer 19

• cost- branding support and growth costs the business money throughout the products lifecycle
• risk- branding a product/service doesn’t guarantee automatic success for a business and therefore seen as a risk associated with business activity.

Question 20

Why is a business concerned with adding value (1)

Answer 20

• In order to make a profit while ensuring there is still demand for the product for example, cutting, polishing, shaping wood all adds value allowing a profit to be made from added value while being able to cover the price of the value added such as labour and money to make the product. For example, adding an additional feature to an alarm clock such as a snooze button allows for there to be added value that can add greater demand and profit.
• consumers will be more prepared to pay more for additional features that cost less than what the addition causes allowing there to be additional profits made, example; of an equation. This can be made through a UPS and branding which causes a product to seem more valuable allowing a higher profit as people will be prepared to pay more for a branded product. For example, Dyson vacuums are seen as premium so people are prepared to pay more as its known for its high quality

Question 21

Why is a business concerned with added value (2)

Answer 21

• further, a retailer with good customer service and reputable name can also charge higher for the products it sells such as John Lewis, further Waitrose is seen as being a higher quality supermarket allowing them to charge higher prices but due to them stocking higher quality products and the level of service, consumers are willing to pay a higher price.

Question 22

What are the advantages of added value

Answer 22

• being able to charge higher prices, that can result in a higher level of profit due to the cost of inputs being lower than the selling price.
• the higher price might enhance the image of a produce allowing a business to target its chosen market more easily for example, luxury cars such as Porsche targets an older generation who have more discretionary income.
• it may allow the opportunity to make the product more distinctive creating a unique selling point as it is known as a high quality product.

Question 23

What are the benefits of having an competitive advantage (1)

Answer 23

• investments in new equipment and technology- new machinery can improve the speed, reliability and quality of products while producing flexibility. This causes lower costs as labour costs can be reduced while also enabling a business to provide unique products that are highly valued by customers. If technology is patented it can lead to an advantage for a long enough time to establish the brands name creating a sustainable advantage. It also allows them to be flexible that allows them to cope with changes in the market.
• staff skills, education and training- a skilled and educated staff will be more adaptable and flexible allowing them to cope with change more readily as well they posses more creativity and innovative talents at a lower costs due to more motivation in work reducing low quality or damaged products while increasing their customer satisfaction enabling the business to differentiate its goods and services from those of its competitors.

Question 24

What are the benefits of having an competitive advantage (2)

Answer 24

• innovation through investment in research and development- due to the pace of change and lower product cycles through having enhanced research and development they are able to have an advantage over businesses that might not invest into this area causing them to not have products or services that reach customer demand. However, according to the competitiveness unit this is an area where UK firms perform poorly compared to advanced economies.
  Through research they can gain a competitive advantage as they can gain greater sales volume and charge higher prices compared to competition, this research can help develop a product tailored towards satisfying the need of its targeted market allowing the promotional mix to be geared towards the interests of the target market in a cost-effective way as they maximise the profitability of the process

Question 25

What are the benefits of having an competitive advantage (3)

Answer 25

• improving quality- improving quality can help a business increase sales volume and the selling price of a product as high quality can increase customer satisfaction and help develop a USP, this can also take place in the production process to reduce waste and make the production more cost effective improving profit margins.

Question 26

What are the difficulties of maintaining a competitive advantage (1)

Answer 26

• investment in new equipment and technology- this can be expensive especially if technology is changing rapidly and requiring constant renewal. If a business is smaller they may not be able to upkeep fixing machinery or technology that gives them a competitive advantage or may have to go without for a while due to controlling their costs of updating technology
• staff skills, education and training- skilled workers require high wages that may reduce profit margins while also taking longer time to recruit due to the needs and experience of finding skilled workers. Training costs also may not be covered if labour turnover is high especially in technology-based industries as technology rapidly changes causing skills to become outdated causing training to be very costly.
• business marketing- unless a business has developed a high level of brand loyalty, marketing may not achieve a sustained competitive advantage as successful marketing strategies can be easily copied by competitors making it difficult to provide long term advantages

Question 27

What are the difficulties of maintaining a competitive advantage (2)

Answer 27

• improving quality - technologies are limited in improving quality as well it can be expensive to improve quality as more procedures and materials are required which can cause the selling price to not be sufficient enough to cover the additional costs of ensuring a higher quality.
• effective human resource management- as they dont own personnel the same way of capital equipment it can be difficult to maintain a competitive advantage through employees as high quality staff can be poached by competitors that can pay higher prices as well as better training and skills that can lead to the erosion of a businesses competitive advantage