The Purpose of Business (AQA GCSE Business)
Revision Note
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
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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