The Purpose of Business (AQA GCSE Business)

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What is a Business?

  • Businesses exist to obtain and process inputs so that they can provide goods and/or services that meet the needs or wants of customers while adding value

Diagram: The Purpose of Business Activity

Business activity involves selling products that meet the needs or wants of customer whilst adding value

The purpose of business activity is to take inputs, add value to them, and create products which meet customer needs

 To produce goods or services

  • The primary purpose of business activity is to produce and sell goods or services that satisfy a demand in the market

    • Goods are physical, tangible products, such as bicycles and T-shirts

    • Services are non-physical, intangible products such as hairdressing, tourism and manicures 

Meeting customer needs and wants

  • The ultimate goal is to create products that meet the needs, wants and preferences of customers and provide value to them

  • By meeting customer needs, businesses can build customer loyalty, increase brand awareness, and generate revenue

To 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

Reasons for Starting a Business

  • Businesses are established for a range of reasons

    • Producing goods and services

      • Identifying an opportunity to produce a unique product

      • E.g. Levi Roots identified an opportunity to produce his Reggae Reggae Sauce products on a large scale

    • Distribution of products

      • Ensuring customers can purchase products that they may otherwise be unable to obtain

      • E.g. Wing Yip Wholesale sells Chinese cooking ingredients to restaurants and small businesses in the Birmingham area

    • Fulfilling a business opportunity

      • Having a business idea that has the potential to make a profit

      • E.g. Elvis & Kresse's owners spotted the potential to turn used fire hose material into luxury accessories such as handbags, belts and wallets

    • Providing a good product to benefit others

      • Meeting a social need that is currently overlooked

      • E.g. Creed Outdoor Learning provides holiday adventure activities at an affordable price to families in Kent

  • Further information on the reasons entrepreneurs set up and run businesses can be found here

Examiner Tip

Added value is often confused with profit. However, there is a key difference. Profit is revenue minus all direct and indirect costs, whereas added value is revenue minus the cost of a product. Added value doesn't include marketing, promotional, or advertising costs, and indirect costs such as rent, utilities and employees' salaries are also not included in its calculation.

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