Added Value

Added Value - means the value of output minus the costs of inputs.  Adding value can enhance the attractiveness of the product to customers and is the key to profit.

Many business will try to avoid competing on prices, and will try to differentiate there product so that they can charge a higher price.  They will try to give there product added value, a farm business might go organic and develop a local market within witch they can sell direct to the customer at prices above those paid by the supermarkets.

Methods of Testing the Market

1.  Sales Research - consumers are given the chance to try a new product e.g. free samples, trial price and limited editions e.g. j20 orange and cranberry.

2. Controlled test marketing - A product is made available in a few stores, e.g. galaxy cookie crumble was initially only made available in Tesco.

3.  Actual test marketing - a full launch of a product in a restricted area, product is sold in usual outlets, promotional activity takes place in the area.

Areas to Improve - Factors Affecting Demand & Leadership Styles

Factors Affecting Demand:

• Price
• Number of buyers
• Price of alternatives
• Income
• Future Expectations
• Tastes 
• Supply
• Quality
• Availability

Leadership Styles:

Leadership is influencing others to achieve certain aims or objectives.  Effective leadership skills can help a manager to carry out there duties.

1.  Autocratic or authoritarian leadership - like to maintain control and do not allow other employees much freedom of action.  Delegate roles and expect obedience.

2.  Paternalistic leadership - Similar to autocratic in approach but take decisions that they believe will be beneficial to the workforce; workforce is treated as family and places great emphasis on meeting the social an leisure needs of its staff.

3.  Democratic leadership - Leader delegates and encourages the development of leadership skills in subordinates, leaders and subordinates discuss issues and employee participation is actively encouraged, leader acts upon advice and explains the reasons for decisions.

Areas to Improve - Economic Factors, Market Segments, Stakeholder Groups and Opportunity Costs

Economic Factors:  Inflation, unemployment, GDP, tax, exchange rates, government spending, competition, interest rates.

Market Segments:  A Market Segment is an identifiable group with similar needs and wants within a market.


Examples of how to define a market segment include:

• Age
• Gender
• Socio-economic Grouping
• Income 
• Usage Rate
• Purchase Occasions
• Demographics

Stakeholder Groups:

A stakeholder is an individual or group which is affected by the actions of a business.

examples of stakeholders include:  employees, local community, local shops, suppliers, retailers.

Opportunity Costs:

values a product in terms of what has been given up to obtain it.  e.g. an accountant might value the extension of a factory at £250 000 based on necessary resources to build,  but an economist might say that the opportunity cost was a training program for employees, as the management team decided on an extension rather than a training program for employees.

Areas to Improve - Calculations

Gross Profit = sales revenue - cost of sales
Net Profit = gross profit - expenses (overheads)
Gross Profit Margin = gross profit/sales revenue x 100
Net Profit Margin = net profit/sales revenue x 100
Total Costs = fixed costs + variable costs
Percentage Change = difference/original x 100
ROCE = fixed assets + investments + current assets
Profit = revenue - cost
Revenue = quantity sold x price

Break Even Point

Contribution = sell price = variable cost
Units needed to break even = fixed cost/contribution
Total Cost = units x variable cost + fixed cost
Total Revenue = sell price x units

Supply and Demand

What is the Supply Curve?

• The supply curve is a relationship between each possible price of the good and the quantity that would be supplied for market sale at that price.

Factors that can affect Supply

• Available resources
• Price
• Competition
• Demand
• Economic factors
• Inflation

What is Effective Demand?

Quantity of a good or service that consumers are actually buying at the current market price.


What is Margin of safety? and How is it Calculated?

• The amount by which a firm's current level of output exceeds the level of output necessary to break even.  
• Margin of safety can be calculated by number of sales - BEP