Added ValueAS 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 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 • 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

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.