The purpose of business activity is to:
- produce goods and services
- meet customer needs
- add value
Let’s look at these in turn.
Produce goods and services
In order to make things, 4 things are needed which are collectively known as the factors of production:
- Land – this is all the natural resources from the ‘land’ that are used in production (e.g. water, coal, gold, wood, etc.)
- Labour – people to work in the business
- Capital – money to get the business started
- Enterprise – the drive and motivation of the owners to get the business started
Meet customer needs
Customer needs are different to customer wants. To make a customer want something, businesses have to work hard to persuade the customer, perhaps by using powerful advertising or providing good customer service.
This is the difference between what a business pays for something and what it sells it for. For example, what does a business do to a bag of potatoes which enables it to sell it for a profit as a bag of frozen chips?
There are 5 ways of adding value to a product or service which you need to know about:
Branding – people will pay more for a brand, even if the product is not much different
Design – something which has been well designed might sell for a higher price, even if it is made of the same material
USP – this is something which makes the product or service stand out and therefore itr can sell for a higher price
Quality – if something is considered to be good quality then people will pay more for it
Convenience – this is a very important concept, customers will pay extra to save time
The role of entrepreneurship
Enterprise is all about taking risks, being creative and innovative.
An entrepreneur develops an idea and then sets about organising the factors of production to carry out business activity.