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Central Purpose of Business Activity
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A look at what is added value, competitive advantages and what is a good.
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Adding Value: Competitive Advantage: A business will add value to raw materials used in its production process A favourable situation that a business organisation has over its rivals arising from a marketing opportunity such as price or
so that there will be significant difference between the cost of cost or even both. Achieving competitive advantage strengthens and positions a business better within the business
purchasing raw materials and the selling price of the finished article. environment.
This also refers to extra feature(s) of an item of interest i.e. product, Within a market where there are a number of competitors, you are selling similar products it is important to develop a
service, person etc. that go beyond the standard expectations and competitive advantage to ensure customers purchase your product.
provide something 'more' while adding little or nothing to its cost.
When the business create a product, the business must pay for raw Methods of obtaining a Competitive Advantage:
materials, rent, rates, heat, electric, labour etc. Therefore when they sell
1. Cost: Charging a lower price than competitors will encourage customers to buy your product. However it is vital that the
a product, they will set a price that covers all of these costs and allows
quality is similar to competitors. As if you offer a lower price product and the quality is lower, you lose your competitive
the business to make a profit. The higher the price, the more profit the
advantage over competitors. Ways to reduce cost that enable a lower price to be set:
business makes.
a. Cheaper supplies.
Added value creates customer loyalty, allows higher profit margins and
b. Cheaper labour.
therefore greater profitability.
c. Switch energy providers.
How to add value: d. Changing production process-> Efficiency rises, cost reduce.
e. Buying new technology: Expensive to buy but in the long-term efficiency will rise, reducing costs.
1. Promotional Activity: Promotions puts a product into the public eye and 2. Differentiation: In a market, where the products are similar, differentiation is key, by design or additional features. This makes
allows a higher price to be set. the product more attractive to buy i.e. iPhone has face time which isn't available on other phones.
2. Customer Service: In certain establishments they will provide a higher 3. Marketing: Better marketing will increase desirability. Cost is expensive to carry it out successfully; smaller companies aren't
service i.e. a car dealership which will make the customer feel special as able to afford it only larger companies can afford it as they have the capital for it.
they get a higher level of treatment compared to a garage which is basic 4. Create an “Economic Moat”. Take advantage of barriers to entry into the market, using them to dissuade competitors from
and has no additions. challenging your market share. In some cases, an established company’s ability to manipulate hurdles to enter and compete
3. Product Design: If the product looks better then it will appeal to the in its market becomes an effective tool against new competition, further entrenching the business and preserving its profit
customer and they will want meaning a higher price can be set that will potential for the foreseeable future.
increase sales and profits. 5. Developing a strong brand: Makes it recognisable and desirable thus a consumer will trust the company more. This is good as
4. Product Features: Additional functionality in software or new features it will make it easier to launch a new product as the public will trust it. The brand means a higher price can be charged
that aren't on the market will give the business a competitive edge via a increasing profits.
USP which separates the business from its competition as it has a unique 6. Unique Selling Point: The product is different from competitors thus the want is greater for your product. It can be wide-
difference. ranging e.g. differentiation, reputation for quality or reputation for good customer service.
5. Location of Premises: In an urban area, the population is much higher 7. Patents/Copyrights: This stops competitors from copying your products which gives you an advantage for a while.
thus sales will be higher in this area compared to a rural area. Also
customers pay more in the city centre.
6. Quality: If the product has greater durability and better design it will
meet the needs of customers and it will create a better product Good: Is a physical product. Made in the manufacturing process, meeting the need of
compared to competitors which allows a higher price to be set. In consumers and their wants.
addition to that customers will be able to trust the product thus Service: A non-physical item. The action of helping or doing work for someone, which a
improving the reputation of the company creating a better brand image. consumer pays for. It intangible e.g. Health Care, Education or the hairdressers.
7. Developing new products: By continuously improving a product with Main Aims:
improved features and better service customers will regularly return as 1. Corporate Image: To gain a better reputation. Creates customer loyalty thus they will pay
it the product meets their needs and it is better than competitors. It may Central
a higher price, if it is a good product.
also allow the business to diversify and spread the costs meaning the Purpose of
2. Profit Maximisation: Costs down, higher profit margin by selling more. Resources used to
company is less reliant on that one product, increasing sales and leading Business
make more profit i.e. capital, land, labour, equipment.
to higher profit. Activity 3. Growth: More you sell the more you make. Method: Advertising -> wider customer base.
4. Diversify: Making new products-> new market, sell more and spread the risk.
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