What Businesses Do.

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  • Created by: Taylor
  • Created on: 26-01-15 09:14

Adding Value

The difference between the price of the final product/service and the cost of the inputs involved in making it.

• Building a brand - a reputation for quality, value etc. That customers are willing to pay.

• Delivering excellent service- high quality, attentive personal service can make the difference between achieving a higher price.

• Product features and benefits- when they improve computer software. All to create a superior model can all add value to a product or service. Finding ways to add value is really important for small businesses. The ways of adding value; Charging a higher price, Creating a point of difference from the competition, Protecting from competitors trying to steal customers by charging lower prices.

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How do businesses add value to resource inputs to

Businesses try and meet the needs of stakeholders by adding value to inputs. Adding value refers to the way in which a business creates products and services to meet the needs of stakeholders in a profitable way. Adding value includes both the cost of transforming raw materials into products and anything that makes the product seem more valuable to the consumer. This value can be added through ways such as brand names, fashion and extra features. Businesses are continually constrained by external factors which inhibit their ability to satisfy all stakeholders. Shareholders will require high profits from low cost and increased revenue. The cost of meeting the needs of one stakeholder may conflict with the needs of another.

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Decision Making.

The process of deciding about something important, especially in a group of people or in an organization.

A lot of time is consumed while decisions are taken. In a management setting, decision cannot be taken abruptly. It should follow the steps such as

1.    Defining the problem

2.    Gathering information and collecting data

3.    Developing and weighing the options

4.    Choosing best possible option

5.    Plan and execute

6.    Take follow up action

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Oppurtinuty Cost.

Opportunity cost is the cost of missing out on the next best opportunity when making a decision. The usual way to work this out is using the interest rate. E.g. the cost of missing out on the interest available from money held in a deposit account. EVERY business decision has a cost (in money, time or other resources) and must be weighed up with care.

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What do Businesses sell?

  • Businesses aim to make a profit by selling products (goods) or services

  • Some firms sell necessities (what people need), others luxury products or services (what people want, but do not need)

  • Businesses have to make profit or break even to survive

  • A good is a tabgible products that the consumer can buy and physically use, for example a mobile phone.

  • A serivce is when the customer pays and gets something done for them, for example paying for a car wash.

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Who do Businesses sell to?

Classification of Businesses, businesses do not just sell to individuals they also sell to other businesses and organisations.

  • Primary Sector.

    • Extract Raw Material.

    • These types of organisations generally sell to manufacturers providing them with the materials which they then make into goods to sell.

    • Decline in UK – Cheaper to import raw materials from other countries.

  • Secondary Sector.

    • Manufacturing and constructing.

    • Using the raw materials they create goods with value which allow them to sell onto other companies or individuals, for example cars.

    • This sector is in declines – Cheaper in other countries – lower production costs.

  • Tertiary Sector.

    • Service sector.

    • Expanded in UK (most of UK economy is in it/ has doubled in past 25 years).

    • This sells services this could also be to other companies or the individual.

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