Edexcel As Chapter 3

Chapter 3: Market positioning
Added Value
Added Value and Creating/ Adding Value:
Added value means the difference between the cost price of purchasing bought-in materials and the
price the finished goods are sold for. Creating value means increasing the difference between the cost
price of purchasing bought-in materials and the price the finished goods are sold for.
Each stage of the production process that the product passes through becomes more valuable than the one
before, as extra features are added. This process tends to be customer- focused so that the customers are
prepared to pay relatively high prices for products which exactly meet their needs.
From the value created or added (by using better quality materials) by the business other costs have to be
paid, such as labour and rent, so value created by a business is not the same as profit.
However, if a business can create increased value without increasing its costs, then profit will increase.
For example, a business can charge higher price for selling a shirt at mall than the business selling is
kiosks as the first one provide better shopping experience by providing A/C, better lighting and staffs. In
this case the first business is adding more value to the business.
Ways to add value:
a) Bundling: creating package of benefits for the services that make up the whole product.
b) Customer service: providing well trained, presented professional staffs with good communication
skills to provide customers with their required services.
c) Speed of response to customers: related to customer service. The prompt the response to customer
will be the more satisfied they will be and will be willing to pay higher.
d) Packaging: attractive packaging can add more value and attract more customers.
e) Frequent buyer offers: rewarding regular customers for repeat purchase can add more value to the
brand.
f) Customisation: customization can improve customer satisfaction as it satisfies individual
customer’s needs.
Benefits of adding value:
• Enables business to charge higher price
• Can be used to differentiate a product from competitors and provide competitive edge
• Protecting itself from competitors charging lower price as it can state higher quality
• Focusing more on target market segment as it meets customer’s needs more effectively
Examples of Opportunity Cost:
Individual examples Opportunity cost
Buying a T-shirt Not buying a DVD
Studying A levels Not taking a job
Business examples Opportunity cost
Spending on research and development Not increasing advertising
New workers Delivery van
Society Examples Opportunity cost
Lower taxes Lower government spending on education
More Unemployment benefits Less hospital beds
Examples of Opportunity Cost:
Individual examples Opportunity cost
Buying a T-shirt Not buying a DVD
Studying A levels Not taking a job
Business examples Opportunity cost
Spending on research and development Not increasing advertising
New workers Delivery van
Society Examples Opportunity cost
Lower taxes Lower government spending on education
More Unemployment benefits Less hospital beds
What business needs to succeed:
 Enterprise - qualities and skills needed to take risk, start up and create a new business venture. It
involves
understanding the nature of business activity, the conditions required for business success and
transforming
inputs into outputs with possible opportunities
 Organization - ability to choose the appropriate resources and combine them together profitably to
produce products at a price the consumer is willing to pay
 Financial Monitoring- Recording, analyzing and summarizing data. Keeping track of cash flows so
decisions made can be based on accurate knowledge of opportunity cost.
 Human Resource Management - Ensure Relevant number of workers with relevant skills are
available
 Marketing- so that the products meet the consumers’ needs in terms of product, price, place and
promotion (4 Ps)
 Objectives- Aims and targets of business are met in a planned way with appropriate strategies used
 Coordination - All the functional departments work together to achieve corporate objectives
(finance,
marketing, operations, HRM)
 Why do new Businesses fail?
As many as 60% businesses fail during the first 2 years. Common reasons include:
 Lack of record keeping - which aids as backup system, evidence and reference. Hence inaccurate
or
incomplete records can lead to wrong interpretations and decision making.
 Lack of cash and working capital - for day-to-day running of business, holding inventories,
allowing
trade credit to customers. Working capital deficiencies can be avoided by:
o Constructing and updating a cash flow forecast (working capital needs of business can be
assessed month by month)
o Inject sufficient capital initially into the business
o Establish good relations with banks and other financial institutes in order to gain overdraft or
borrowing facilities.
o Use effective credit control over customers’ accounts.
 Poor management skills- For example:
o Leadership skills

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Chapter 3: Market positioning

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