2.1.3 R&D and Innovation Flashcards
process innovation
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)
product innovation
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
product life cycle
Shows stages of a product
extension strats
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
research and D as an incentive
- 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
invention and innovation and benefits
- 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
product and service inn and benefits
- 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
process innovation
- 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
patents
- 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
benefits of a patent and drawb
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)
process and prod inn and competition
- Prod inn: differentiation, new products = new markets and product improvements add value
- Process innovation: reduce costs, sometimes facilitating economies of scale
state funding
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
product life cycles and benefits
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
product portfolio
- 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
development as PLC
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
introduction as a PLC
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
growth as a PLC
- 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
maturity as a PLC
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
saturation as a PLC
- 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
decline as a PLC
- 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
product life cycle extension
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
the long tail
‘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
andersons principles
- 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
online stores
- 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
