Adding ValueAdding Value

Learning objectives:be able to

understand …

… understand the meaning of the term adding

value

…appreciate the main

sources of added value

… explain the importance of added value in business survival

and success

Adding valueAdding value

DefinitionAdded value is the

increased worth that a business creates for a

product.

DefinitionAdded value is the

increased worth that a business creates for a

product.

MeasurementDifference between the

value placed on the cost of inputs and the value placed

on the product by the consumer

MeasurementDifference between the

value placed on the cost of inputs and the value placed

on the product by the consumer

If you were a business, an average sized unwashed potato would cost you about 4p to buy in. What could you do to persuade a customer to pay more

than 4p for it? Brainstorm your ideas as a group and record what you

come up with on flipchart paper. Be prepared to feedback to the rest of the

class.

Task 1: the humble Task 1: the humble potato – how would you potato – how would you add value?add value?

How businesses add value

QualityQuality

Design and

formula

Design and

formula

Convenience

Convenience

BrandingBranding

Unique Selling

Point (USP)

Unique Selling

Point (USP)

Speed and quality of service

Speed and quality of service

Task 2: work it outTask 2: work it out

Let’s have a go at working out value added Remember how to measure value added? if not look it up in your worksheet

When you are called to come up to the whiteboard choose a business decide where it should be placed in terms of value added –

high or low drag the business to your chosen position justify your decision to the rest of the class

Highest value added

Lowest value added

Toy manufacturerPays £3.75 for materials for a train and sells it to a retailer for £5.95

Small farmSells a bush to a garden centre for £1.50 which has cost £1 to grow

DesignerA magazine designer pays £1.75 to produce each magazine and sells a magazine for £4.95

RestaurantA restaurant buys a bottle of wine for £18 and sells it for £54

Dog grooming service

A dog grooming service costs £18 for each dog it grooms and charges £32 for this service

Task 3: group Task 3: group discussiondiscussion In your groups, identify why value added is

important to a business start by reminding yourselves what value added

is and how it is measured think about what benefits value added brings to

a business think about what would happen to a business

which didn’t add value

Jot down the thoughts of your group and be prepared to feedback to the class

Importance of value added

allows a business to pay its billswages, rent, tax, administration

allows a business to pay its billswages, rent, tax, administration

allows a business to reward its

shareholdersdividend payments

allows a business to reward its

shareholdersdividend payments

generates profit to reinvest

this allows the business to grow

generates profit to reinvest

this allows the business to grow

allows a business to

competeprice and

position in the market is defensible

allows a business to

competeprice and

position in the market is defensible

Task 4: exam practiceTask 4: exam practice

Complete the three multiple choice questions on the worksheet to check your understanding of the topic we have now completed.

Record your mark on your worksheet.

PlenaryPlenaryWatch the Cadbury Smash TV advert

from the 1970sHow did Smash create value added?

HomeworkHomework

Complete the extended writing task on added value by answering Questions 1 – 3. Make sure you make good use of the technique tips

provided and that your answers are fully EXPLAINED.