2.1.3 R&D and Innovation

Question 1

process innovation

Answer 1

When new or improved production methods are used, enhancing efficiency or reducing costs (can include changing production methods, improving distribution channels, stock control systems and supply chains)

Question 2

product innovation

Answer 2

New product or improved, due to new tech; can be about completely new products or small changes to existing products to improve performance and cust satis

Question 3

product life cycle

Answer 3

Shows stages of a product

Question 4

extension strats

Answer 4

Ways to increase sales by relaunching the product with a new image or by aiming at a different market segment/promoting it in new ways

Question 5

research and D as an incentive

Answer 5

• Research and development:
• Activities a firm undertakes to develop new products/processes or improve them
• Can play a role in creating or maintaingg a competitive advantage through innovation
  Innovation can lead to growth and is key for some eg apple and google
• Can increase market power as it is hard to compete with new products

Question 6

invention and innovation and benefits

Answer 6

• Invention is the formulation of new ideas for products and processes
• Innovation is about the practical application of new inventions into marketable products or services
• Innovation is more important as it focuses on activities that help a firm meet its objectives such as growth, profitability, increased market share, or stability
• Benefits: improved productivity + reduced costs, building a brand (product differentiation), establishing an advantage over competitors, higher sales and profits

Question 7

product and service inn and benefits

Answer 7

• Launching new products/improved products to the market
• Advantages may include:
• ‘First mover advantage’:
• Higher prices and profitability
• Added value
• Opportunity to build early customer loyalty
• Enhanced reputation as an innovative company
• Public relations - eg news coverage
  Increased market share

Question 8

process innovation

Answer 8

• Finding better/more efficient ways of producing existing products/delivering existing services
• Advantages: reduced costs, improved quality, more responsive customer service, greater flexibility, higher profits
• Possible drawbacks: loss of jobs, especially if work is outsourced, needs for re-training of workers

Question 9

patents

Answer 9

• Patents (bluetooth, electronic device (apple), lightbulb (edison stole), quadcopter drone
• To be protected by a patent the invention must be:
• new
  = An innovative step, not obvious
• Capable of industrial application, made and used
• Not be excludes, scientific theories or artistic creations

Question 10

benefits of a patent and drawb

Answer 10

Benefits → need high profits to gain retained profit to reinvest and create new products needed, good for long run

Drawbacks: very high prices to use product, demand may contract due to cheaper subsidies (eg knock offs)

Question 11

process and prod inn and competition

Answer 11

• Prod inn: differentiation, new products = new markets and product improvements add value
• Process innovation: reduce costs, sometimes facilitating economies of scale

Question 12

state funding

Answer 12

R&D and innovation contribute to competition in a global economy
- Expensive: The state may provi8de funding and support to businesses, enterprises, research facilities and academic institutions

Question 13

product life cycles and benefits

Answer 13

Product lifecycle: hows the stages that products go through from development to withdrawal from the market
- Each prod may have a different PLC
- Determines revenue earned
Contributes to strategic market planning
- May help the firm to identify when a product needs support, redesign, reinvigorating, withdrawal etc
- May help in new product development planning
- May help in forecasting and managing cash flow

Question 14

product portfolio

Answer 14

• Product portfolio: the range of products in a company has in development or available for consumers → managing is good for cash flow
• Appeal to many different consumers at the same time, so it helps companies spread risk

Question 15

development as PLC

Answer 15

Initial ideas
- Market R, monitoring competition, planned research and development, luck/intuition, creative thinking (inventions), future thinking
- Product development and refinement
- Test marketing - possible local/regional
- Analysis of test marketing results and amendment of product
- Prep for launch (publicity)
- Expensive: increased costs with no rev yet, need alt sources of finance + think about cash flow

High investment levels and no sales so cahs flow is neg

Limited promotion to alert retailers and consumers prior to launch

Question 16

introduction as a PLC

Answer 16

Ads and promotion campaigns
- Target campaign at specific audience
- Monitor initial sales
- Maximise publicity
- High costs low sales
- Length of time - type of product

CF Negative as low initial sales vs high costs of initial launch and prod

Heavy promotion to create awareness
- Prices depends on competition, or can be premium due to demand

Question 17

growth as a PLC

Answer 17

• Increased consumer awareness
• Sales rise, rev increases
• Costs, FC, VC maybs profits
• Monitor market and competition
• Secondary market research

Sales pick up, promotional costs are high but cahs flow should become positive

Promotion may change emphasis to building nbrand loyalty
- Prices can become premium or fall to comp to secure a mass market

Question 18

maturity as a PLC

Answer 18

Sales reach peak
- Costs of supporting the product declines
- Ratio of revenue to cost is high
- Sales growth can be low
- Market share can be high
- Competition likely to be greater
- PED?

Monitor market, changes/amendments/new strategies
Cash flow should be maximised as sales peak, average costs begin to fall as any economies of scale are reached

Promotion may ease as brand becomes established, with occasional bursts to maintain sales or differentiate from rival products

Question 19

saturation as a PLC

Answer 19

• New entrants flood market
• Necessities to develop new strategies become pressing (changing fashions, seeking new market segments, joint ventures like media snd music)
• Developing new uses
• Adapting prod
• Repackaging or format
• Improving standard or quality

Question 20

decline as a PLC

Answer 20

• Product outlives value
• Fashions change
• Tech changes
• Sales decline
• Costs of supporting starts to rise too far
• Decision to withdraw may be dependent on availability of new products and whether fashion/trends will come around again

Sales fall but cf is pos as average costs are low

Little promotion, price is likely to fall to maintain some sales until the product reaches the end of its life

Question 21

product life cycle extension

Answer 21

Extend life of product before decline, using marketing techniques
- Advertising for a new audience, price reduction to exend demand, adding value to current prod, exploring new markets eg abroad, new packaging

The maturity stage is the most profitable part of the cycle → extending it makes good business sense
- Seeking new markets, finding new uses for the product, developing variations and finding new ways to market the product can extend its life

Question 22

the long tail

Answer 22

‘Future of business is selling less of more’
- Long tail is about the mass market is turning into a million niches (more products in the market)
- Hit: best seller eg a blockbuster vs a niche = lesser known, specific market
- The long tail shows there are more niches than hits in modern days + the cost of reaching those niches is now falling dramatically
- When there is an expanded variety of niches and filters to sort through them (consumers can find specific niches) the demand curve flattens

Before the internet: there were more hits and industries were different (music, tv, film etc)
- After the internet, streaming services etc, and broadcast technologies, industry economics were altered from econ of scarcity to econ of abundance
- The future very heterogeneous, not homogeneous → culture of hits to culture of niches

Question 23

andersons principles

Answer 23

• Anderson’s first principle: democratise the tools of production, more products, lengthens tail
• Anderson’s second principle: democratise the tools of - distribution, more access to niches, fattens tail
• Andersons third principle: drives businesses from hits to niches

The internet reduces the effective distance between producers and consumers: they can tailor products better to customer desires, create more niches and make a profit tailoring to these niches

Question 24

online stores

Answer 24

• Good: wider choice in the niches, heavily discounted as costs are lower for store (no physical presence) → demand extends as P decreases
• In the LR: less choice as there are actually less stores on the highstreet for those who do not shop online
• businesses must cater to both digital natives and digital immigrants