1.1.4 Understanding the need to Add Value Look at the following words: way, ear, rack, read, rode, rail, rip, aunt, rate, am, ink, and, are, ever, pen, arch, is, at, tick, art, sage, ale, heat, ray, east, one How might you add to them? Alphabet 1.1.4 Understanding the need to Add Value 1.1.4 Understanding the need to Add Value

How Much? 1.1.4 Understanding the need to Add Value

How Much? 1.1.4 Understanding the need to Add Value

How Much? 1.1.4 Understanding the need to Add Value

How Much? 1.1.4 Understanding the need to Add Value

How Much? 1.1.4 Understanding the need to Add Value

1.1.4 Understand the need to add value Firms add value to a product to provide a competitive edge. This allows them to charge higher prices. Higher prices will allow for a bigger profit margin per unit sold. Profit margin is the difference between the cost of the item and its selling price. Bananas are bananas! Why do you think that customers will pay more for bananas from Marks and Spencer’s than they will for bananas from Asda or Morrisons supermarkets? 1.1.4 Understanding the need to Add Value

Adding value - the factors of production These are the inputs into a production process in order to achieve an output: Land – natural resources such as agriculture, fishing, forestry, oils Labour – the skills available and characteristics of the workforce Capital – investment in man-made aids to production such as factories and machinery Enterprise – the risk undertaken by an entrepreneur in transforming the other factors of production into output in order to gain a reward, normally profit 1.1.4 Understanding the need to Add Value

The meaning of Added Value Adding value is when a business increases the worth of its factor inputs (the factors of production) by creating new output (the new product). This added value can be measured in terms of financial worth. The total value of inputs to a car might be worth £6000 in terms of metal, wages etc. and the firm sell the car for £10000 - adding value of £4000. 1.1.4 Understanding the need to Add Value

Adding Value – the Design Council’s eight activities The retail experience – the shopping environment, location and opening times Online services – web-based ordering systems: information on products Physical services – fitting, installation, technical support or flexible delivery Customer relationships – through after-sales service or knowledgeable staff The design of products – improved quality, customising to meet personal needs Finance or insurance options Developing a valued and trusted brand Bundling products and services to create packages 1.1.4 Understanding the need to Add Value

Adding value – a case study Choose a retail business that you are familiar with. Comment on the retail experience at your business Do they have any online services? What physical services do they provide? Comment on customer relationships Describe the design of their products Do they provide finance or insurance options? Have they developed a valued and trusted brand? Do they bundle products and services to create packages? 1.1.4 Understanding the need to Add Value

Adding Value – importance in business survival and success Choose a product that you are familiar with What ingredients go into your product? Estimate their cost How are these transformed into a finished product? What is the selling price of your product? What would happen if the selling price was higher than the cost? Input Process = Added Value Output + 1.1.4 Understanding the need to Add Value

Adding Value – importance in business survival and success Watch this video about the production of Goodfella’s Pizzas How do Goodfella’s manage to reduce their input costs? How will the process help Goodfella’s to increase output? Do you think that this type of production will lead to the success of Goodfella’s? Goodfella’s production bbc 1.1.4 Understanding the need to Add Value

The main sources of Added Value – convenience and speed Consumers look for ease of access and fast service when buying products Is it important for a start-up business to provide convenience and speed to its customers? Do you have easy access to a big 4 supermarket? Do you queue for long? Would it stop you from visiting a store if it wasn’t convenient and the service was slow? 1.1.4 Understanding the need to Add Value

The main sources of Added Value – branding Organisations spend enormous amounts of time and money branding their company and products. Branding involves the creation of an identity for the business that distinguishes that firm and its products from other firms. Branding can add value to a product allowing firms to charge higher prices and also leads to brand loyalty whereby customers will continue to buy products from that firm. Pure Genius: http://www.youtube.com/watch?v=jdKI1TyDhaw Guinness ad Dancing man How can this type of advertising help to brand a product? 1.1.4 Understanding the need to Add Value

The main sources of Added Value – branding You have 30 seconds to write down as many brands as you can think of starting from NOW! 9 8 10 12 30 7 11 5 2 1 3 4 14 6 13 25 15 26 27 29 28 23 24 22 17 18 19 21 20 16 End Look at this image displaying the world’s top brands. How many of the brands did you list? How important is brand name to you when buying a product? 1.1.4 Understanding the need to Add Value

The main sources of Added Value – Quality and Design Quality can be expressed or measured in a number of ways, these include: Aesthetics i.e. physical appearance Features i.e. physical attributes Core Aspects i.e. basic abilities/ functionality Actual Aspects i.e. added extras / functionality Augmented Aspects i.e. support feature e.g. warranty Performance i.e. reliability, durability Intangible Aspects i.e. non physical attributes e.g. brand name, reputation Sky News Sep 1, 2006 Ratner Plots Triumphant Return He was once one of the biggest names in business - with an empire of jewellers around the country. But things have never been the same for Gerald Ratner since he criticised the quality of some of his products. The rise and fall of Ratners. How Gerald Ratner destroyed the value of his business in one minute. 1.1.4 Understanding the need to Add Value

The main sources of Added Value – Quality and Design Quality is also important when providing a service, the measures we apply may however be different. Friendliness of staff Speed of service Efficiency of service Staff knowledge Cleanliness of facilities Appearance of environment Which measures of quality are most important to you when choosing a mobile phone a holiday a sports shirt a sandwich shop How is value added to these products? 1.1.4 Understanding the need to Add Value

The main sources of Added Value – unique selling point A Unique Selling Point (USP) is something that distinguishes a firms product from those of its competitors. Firms try to make their product different to the competition by adapting the actual product in some way or by distinguishing the product through advertising and branding. This is known as product differentiation. A USP can allow a firm to charge a premium price. A USP at Dragon’s Den! waterbuoy on dragons den 1.1.4 Understanding the need to Add Value

Activity For a cup of tea identify The inputs The process The output How much would you be willing to pay? What is the estimated added value? Consider each of the images below How have the inputs changed? How has the process changed? How has the output changed? Does this affect the price you are willing to pay? Does this affect the added value? 1.1.4 Understanding the need to Add Value

MULTIPLE CHOICE 1. Which two of the following might be the best ways to add value to a product □ A Providing after sales service to a customer □ B Producing a cash flow forecast for the business □ C Advertising in the local newspaper □ D Transforming raw materials into a finished product □ E Paying higher wages to employees A, D 1.1.4 Understanding the need to Add Value 21