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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
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
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