Unique Selling Proposition and Business Strategies

Unique Selling Proposition (USP)

A Unique Selling Proposition (USP) is the attribute or characteristic that makes a business special and differentiates it from the competition in the minds of customers.

External Stakeholders

External stakeholders include:

• Local community – e.g., local farmers, herders, and villagers.
• Government – e.g., central and regional.

Target Profit Formula

The target profit formula is:

Target Profit Quantity = (Fixed Cost + Target Profit) / (Price - Variable cost per unit)

Example: (800,000 + 400,000) / (10,000 - 5,000) = 240 trekkers

Impact of Changes in 2014

In 2014, the following changes occurred:

• Annual fixed costs increased by 20%.
• Rising fuel costs of flights increased average variable costs by 40% per trekker.
• The average price charged per trekker remained the same ($10,000), as did the number of clients (300).

Increase in Fixed and Variable Costs

The increase in fixed cost (FC) is $160,000.

The increase in variable cost (VC) is $2,000.

Break-Even Analysis

Break-Even (BE) = FC / (Price - VC) = 960,000 / (10,000 - 7,000) = 320 trekkers

Margin of Safety (MoS) = Sales quantity - BE quantity = 300 - 320 = -20 trekkers

Possible Responses

Possible responses include:

• Increase prices: The total revenue curve will increase, and the break-even point will reduce. Brand loyalty is very strong, so customers are likely to be price inelastic.
• Reduce variable costs: Such as shorter itineraries to save on fuel, less food, or lower quality food. The reduction in variable cost will reduce the total cost line, and the company will break even at an earlier point.

Benefits of Strong Relationships

Benefits of stronger relationships:

• Stronger relationships with the local community, which might ensure excellent local guides and better and possibly cheaper supply of food.
• Stronger relationships with regional and central governments, which might increase bargaining power for obtaining licenses/permits, possibly at a reduced cost in the future.
• Help motivate all internal stakeholders, especially employees. As the company provides a service, employee performance is very important and can further add to the competitive edge.

Drawbacks

• The competitive advantage based on the current USP of being socially responsible may be short-lived. Any competitor can do the same.
• Some of the practices used, such as sourcing local food, employing only experienced staff with social responsibility practices, and employing local guides, may actually increase costs and reduce profits.
• Attitudes can change further over time. If the company relies on high prices in order to remain socially responsible, the demand may fall. Moreover, the niche or segment might not be big enough despite the positive changing attitudes toward being socially responsible.