Business activity exists to produce goods and services, satisfy customer needs, and add value to products in competitive markets through differentiation and innovation.
The purpose of business activity
Business activity is any process that involves the creation, distribution, and exchange of goods or services with the goal of meeting people’s needs and wants. In any economy, businesses play a vital role by turning raw materials and labor into finished products or services that provide utility to customers. Businesses exist not only to make profit but also to improve standards of living, provide employment, and drive innovation.
By understanding the purpose of business activity, students can better appreciate why businesses operate in certain ways, what motivates business decisions, and how businesses contribute to both individual well-being and national economic health.
Producing goods and services
One of the primary roles of a business is to produce goods and services. These are the products that are either tangible or intangible and are designed to satisfy the needs or wants of customers.
Goods are physical products that can be touched, stored, and transported. Examples include smartphones, books, bicycles, and clothing.
Services are activities or benefits offered for sale that are intangible. Examples include tutoring, hairdressing, banking, and transportation.
Businesses are often categorized by the type of production they are involved in:
Primary sector businesses extract natural resources. Examples: farming, fishing, and mining.
Secondary sector businesses manufacture products. Examples: factories, car manufacturers, clothing producers.
Tertiary sector businesses provide services. Examples: retail stores, hotels, health care providers.
The production of goods and services helps ensure that people can access the products they need or want in their daily lives. A bakery producing bread, for instance, provides a physical good, while a fitness instructor offering sessions is providing a service. Without these offerings, people’s needs and wants would go unmet, and the economy would stagnate.
Meeting customer needs
Another key purpose of business activity is to meet the needs of customers. Successful businesses understand their target customers and strive to provide products or services that match their expectations.
Customer needs refer to the essential requirements that businesses must fulfill to ensure satisfaction and encourage repeat purchases. These include:
Functional needs: The product must work as expected. For example, a washing machine must clean clothes effectively.
Emotional needs: The product should make the customer feel a certain way, such as feeling safe, stylish, or cared for.
Price-related needs: Customers want good value for money, meaning the price should reflect the quality and usefulness of the product.
Convenience: People often prefer products or services that save time and are easy to access or use.
Availability: Products should be accessible when and where customers want them.
Customer service: Friendly and efficient service increases customer satisfaction and loyalty.
Businesses conduct market research to better understand what customers want and need. By doing so, they can tailor their products and services to suit customer preferences, increasing the chances of business success.
Adding value
Adding value is a central aim of business activity. It means increasing the worth of a product or service so that it is perceived as being more valuable than the sum of its parts. When a business adds value, it creates a reason for customers to choose its product over others, often allowing the business to charge a higher price.
The basic equation for added value is:
Added Value = Selling Price − Cost of Inputs
For example, if a company produces a T-shirt for 20, it has added $15 in value. This value could come from brand image, unique design, high quality, or ethical production methods.
The more value a business can add, the more competitive it becomes. Added value is crucial for achieving higher profit margins and long-term sustainability.
How businesses add value
There are several key ways that businesses add value to their products or services. Each method gives customers a reason to prefer one product over another, even if the basic function is similar. Understanding these strategies helps students recognize how businesses compete in the market.
Convenience
Convenience refers to how easy and efficient a product or service is for the customer to use or obtain. In today’s fast-paced world, many customers are willing to pay more for products that save time or effort.
Ways businesses add value through convenience:
Online ordering and home delivery: Services like Amazon Prime or grocery delivery apps allow customers to shop from home.
Extended opening hours: Stores that are open late or 24/7, such as pharmacies and supermarkets.
Drive-through services: Fast-food chains like McDonald’s offer quick service without customers needing to leave their cars.
Mobile apps: Banks and utility companies provide apps that let customers manage services at their convenience.
By making life easier for the customer, businesses can charge higher prices or gain more loyalty, ultimately increasing revenue.
Branding
Branding is the use of a consistent name, design, logo, and marketing message to create a unique identity for a business or product. A strong brand adds value by building recognition, trust, and loyalty.
Key benefits of branding:
Customer recognition: Customers quickly identify the brand in a crowded market.
Trust and quality perception: A well-known brand is often seen as more reliable or higher quality.
Emotional connection: Brands can appeal to customers' emotions, such as luxury, excitement, or nostalgia.
Examples:
Apple: Known for innovation, sleek design, and high performance.
Nike: Associated with motivation, fitness, and high-performance athletic gear.
Starbucks: Offers more than coffee—customers associate it with comfort and social experience.
These associations allow companies to charge premium prices and still maintain strong demand.
Quality
Quality refers to the standard of a product or service and how well it meets customer expectations. High-quality goods and services lead to satisfied customers and repeat business.
Ways to demonstrate quality:
Using durable and reliable materials
Offering guarantees or warranties
Providing consistent performance and reliability
Ensuring excellent customer service
Maintaining attention to detail in product presentation
Example: Luxury brands like Rolex and Mercedes-Benz are known for their superior craftsmanship, which adds value and justifies their high prices. Even everyday products, like a well-made winter coat, can command a higher price if it lasts longer and performs better than cheaper alternatives.
Design
Design is how a product looks and functions. A well-designed product is often more attractive, easier to use, and better suited to customer needs. It can include visual elements (colors, shape, materials) and functional aspects (ergonomics, features, layout).
Design adds value by:
Making products more visually appealing
Improving usability and customer satisfaction
Solving customer problems in new ways
Reflecting customer lifestyles or values
Examples:
Dyson vacuum cleaners revolutionized the design of household appliances with clear bins, sleek curves, and strong suction performance.
Tesla electric cars blend futuristic design with cutting-edge technology to attract eco-conscious consumers.
IKEA offers minimalist, stylish furniture that is easy to transport and assemble.
Design is especially important in crowded markets, where it helps products stand out.
Unique selling point (USP)
A Unique Selling Point (USP) is a feature or benefit that makes a product different from and better than the competition. A strong USP clearly communicates to the customer why they should choose that product.
Importance of a USP:
Helps a product stand out in a crowded marketplace
Gives customers a clear reason to choose one product over another
Allows for targeted marketing and messaging
Examples of USPs:
Lush cosmetics: Handmade, ethical, and environmentally friendly products.
Tesla: Electric cars with cutting-edge technology and performance.
Subway: Customizable sandwiches made fresh to order.
By emphasizing what makes them unique, businesses can increase customer loyalty and avoid price competition.
Real-world examples of adding value
Examining real businesses shows how adding value works in practice and contributes to business success.
Starbucks
Convenience: Offers mobile ordering, drive-thru, and multiple locations.
Branding: Strong global identity and lifestyle image.
Quality: Uses ethically sourced, high-quality coffee.
USP: Personalized drinks and welcoming café environment.
Starbucks customers return not just for coffee, but for the experience, even if it costs more than alternatives.
IKEA
Design: Affordable furniture with clean, modern aesthetics.
Convenience: Flat-packed items make transport and storage easier.
USP: Self-assembly and practicality combined with affordability.
IKEA adds value by offering stylish furniture that customers can afford and take home immediately.
Ben & Jerry’s
Branding: Fun, socially responsible, and eco-conscious image.
Quality: Uses premium ingredients in unique flavor combinations.
USP: Creative names and a commitment to environmental causes.
Customers see Ben & Jerry’s as more than just ice cream—it’s a statement of values and quality.
Apple
Design: Sleek, modern products with a focus on user experience.
Branding: Innovative, creative, and premium lifestyle.
USP: Seamless integration between devices and exclusive features.
Apple adds significant value by creating a product ecosystem that keeps customers engaged and loyal.
FAQ
The perception of value varies between customers and businesses because they evaluate worth from different perspectives. Customers judge value based on the benefits they believe they receive in exchange for the price paid. These benefits may include quality, design, convenience, customer service, brand reputation, and emotional satisfaction. For example, a customer may value a luxury handbag not just for its material but for the status and style it offers. On the other hand, businesses calculate value by considering the cost of production versus the price customers are willing to pay. This includes material costs, labor, marketing, and other operational expenses. The gap between these two perceptions can greatly influence business success. If customers feel they are not getting sufficient value, they may choose competitors, regardless of the business’s actual costs or efforts. Understanding customer perception of value allows businesses to adjust their pricing, marketing, and product features to better align with customer expectations and gain a competitive edge.
Focusing solely on adding value can be risky if a business neglects to control its costs, as it may reduce profit margins or even result in losses. While strategies like improving design, offering premium customer service, or using higher quality materials can increase perceived value and allow for higher pricing, they also usually increase operational costs. If the additional value added does not lead to a proportional increase in sales or pricing power, the business may struggle to cover its expenses. For example, a bakery might use expensive organic ingredients and eco-friendly packaging to add value, but if customers are unwilling to pay significantly more, profits can decline. Moreover, in highly competitive markets, there’s a limit to how much value customers are willing to pay for. Therefore, it’s crucial for businesses to strike a balance between delivering value and maintaining cost efficiency. Cost control ensures that the business remains financially viable while delivering a superior customer experience.
Small businesses can compete with large firms in adding value by leveraging personalization, niche markets, flexibility, and customer relationships. Unlike large companies that often rely on mass production and standardized services, small businesses can offer highly tailored products and personal service. For instance, a local coffee shop may add value by learning customer preferences, using local ingredients, and creating a cozy atmosphere that feels more authentic than a national chain. Additionally, small firms can operate in niche markets that larger firms overlook. A handmade soap business might appeal to eco-conscious consumers who value sustainability and craftsmanship—traits that add value through ethical sourcing and unique design. Small businesses also tend to be more agile, allowing them to quickly adapt to customer feedback or market changes. Through direct communication and community engagement, they build strong customer loyalty. These strategies allow them to add value in ways that large firms may find difficult to replicate.
Packaging plays a significant role in adding value by influencing customer perception, enhancing usability, and supporting brand identity. Visually appealing and well-designed packaging can attract attention on shelves and create a strong first impression. This is especially important in retail environments where packaging can be a deciding factor. For example, luxury products often use elegant, minimalistic packaging to signal exclusivity and high quality. Beyond aesthetics, practical packaging—such as resealable bags or easy-to-open containers—adds value by improving convenience and user experience. Environmentally friendly packaging can also add value for customers who prioritize sustainability, giving the product ethical appeal. Moreover, packaging reinforces branding through colors, logos, and messaging that communicate the business’s values and differentiate it from competitors. In digital commerce, premium packaging enhances the unboxing experience, which customers may share online, further promoting the brand. Overall, packaging is not just about protection—it is a strategic tool for value creation and competitive advantage.
Yes, businesses can add value without increasing their prices by improving the overall customer experience, enhancing product features, and offering additional services. For example, a clothing retailer might introduce a loyalty program that rewards repeat customers without changing the price of the garments. Another method is improving customer service—friendly, knowledgeable staff and faster response times can increase customer satisfaction without added costs to the consumer. Businesses can also upgrade packaging, simplify product instructions, or redesign a product for greater convenience or aesthetics, all of which can raise perceived value. In digital services, adding value may involve providing more user-friendly interfaces, helpful content, or access to support tools, which enhance usability without raising prices. The key is to make the product or service more appealing or useful to the customer, which in turn can lead to greater customer loyalty, increased market share, and improved reputation. These intangible elements strengthen the business’s position without altering its pricing structure.
Practice Questions
Explain one way a business can add value to its products and why this is important for its success.
One way a business can add value is through branding. A strong brand makes the product more recognizable and trusted by customers, which can lead to increased customer loyalty. For example, Apple’s brand adds value through innovation, quality, and a sleek image. This allows the company to charge premium prices and stand out in a competitive market. Adding value through branding is important for success because it helps the business attract repeat customers, reduces the need to compete on price, and can lead to higher profit margins, which are essential for long-term growth and sustainability.
Using an example, analyze how meeting customer needs can help a business achieve success.
Meeting customer needs is essential because it ensures customer satisfaction, which can lead to repeat purchases and positive word-of-mouth. For instance, Amazon meets customer needs by offering convenience through fast delivery and a wide product range. By consistently meeting these needs, Amazon builds a loyal customer base, encouraging more frequent purchases. This boosts revenue and improves market share. Satisfied customers are also less likely to switch to competitors, helping the business retain its position in the market. Therefore, aligning products and services with customer needs is key to building a strong reputation and achieving long-term business success.
