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1-1-3-The-Role-Of-Business-Enterprise

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Exam code:1BS0

The purpose of business activity

The purpose of business activity can be broadly defined as the activities that businesses engage in to produce goods or services that meet customer needs while adding value

What businesses do

Diagram of a firm's operation showing inputs: raw materials, costs, and added value. Outputs include goods, services, and profit or loss. — **The purpose of business activity is to take inputs, add value to them, and create products which meet customer needs**

Produce goods or services

The primary purpose of business activity is to produce goods or services that satisfy a need or demand in the market
- Goods are physical products, such as bicycles and T-shirts
- Services are non-physical items such as hairdressing, tourism and manicures

Meet customer needs

The ultimate goal is to create products that meet the needs and preferences of customers and provide value to them
By meeting customer needs, businesses can build customer loyalty, increase brand awareness, and generate revenue

Add value

The third purpose of business activity is to add value to products or services
Value-added features can differentiate products from competitors, create a unique selling point, and increase customer satisfaction
- E.g. a product that is easier to use, has a better design, or is of higher quality than competitors can create a competitive advantage for a business

Methods of adding value to products and services

Adding value is the difference between the price that is charged to the customer and the cost of inputs required to create the product or service
- E.g. customers are prepared to pay more for potatoes when they are packaged as oven chips than they would be willing to pay for a bag of potatoes

Ways businesses add value

Infographic on ways to add value: convenience, branding, quality, design, and unique selling points, enhancing customer satisfaction and profitability. — **Firms may add value by developing USPs, branding, better design and quality or by offering convenience**

The methods of adding value overlap with some of the features of product differentiation

Examples: how businesses add value

Method	Example
Branding	Apple has built a brand that many customers believe is superior to other brands They have achieved this through the use of quality materials, innovative design and good marketing This branding allows the firm to charge a higher price for its products thus increasing the added value
Convenience	Persil initially provided a bottle of dishwashing liquid for dishwashing machine use This resulted in spillage as customers added the liquid to their machines, so Persil then created tablets The tablets offered a much more convenient option and Persil was able to charge a higher selling price for them
Quality	Jo Malone perfume products are well known for their beautiful packaging which creates an exciting opening experience for the customer This allows the firm to charge a higher price for its products thus increasing the added value
Unique selling points (USPs)	MoonPig birthday cards can be completely customised (size, colour, design etc.) and the level of customisation has helped them to gain a competitive advantage This customisation allows the firm to charge a higher price for its cards thus increasing the added value
Design	Samsung Galaxy Watch 5 has robust health tracking tools built into it, along with an amazing screen, which has helped it to gain a competitive advantage These features allow the firm to charge a higher price for its products thus increasing the added value

Examiner Tips and Tricks

Businesses may use several methods of adding value. It’s important to understand that adding value adds raises costs, but it is worth it if the increase in selling price outweighs the costs associated with the method.

For example, if improving the packaging costs £1 per unit and the firm is able to raise its selling price by £1,40 per unit, then the firm can improve its profitability by changing the packaging.

The role of entrepreneurship

An entrepreneur is a person who is willing and able to create a new business idea or invention and takes risks in pursuing success
- Successful entrepreneurs can identify and pursue opportunities, create value for customers and build thriving businesses
Entrepreneurs display three main characteristics

They organise resources

An entrepreneur must be able to gather and coordinate the resources necessary to start and operate a business
- E.g. When Michael Dell started his computer company from his garage, he had to organise resources such as space, computers, software tools, and employees, and manage the finances

They make business decisions

Entrepreneurs must be able to make decisions that will determine the success or failure of their business
- E.g. A restaurant owner may need to decide what type of food to serve, where to locate the restaurant, and what prices to charge. These decisions require a combination of market research, creativity, and business skill
- Making the wrong decisions can lead to wasted resources, lost opportunities, and ultimately business failure

They take risks

Entrepreneurship involves taking risks – financial, personal, or professional
- E.g. An entrepreneur may invest their life savings into a new venture or quit a secure job to start their own business
- They may also take risks by introducing new products or entering new markets
These risks can pay off with great rewards, but they can also lead to failure and financial loss
As a business grows an entrepreneur may make the decision to employ staff to help with its day to day operations
- The entrepreneur may take on the role of mentor, supporting new staff members to carry out their tasks in a particular way

Business GCES EDEXCEL