Economics Theme 2 1.3 Flashcards
What is innovation
innovation is the development of an idea into a new product or process. Businesses invest money and time in order to make profit
Product innovation is adapting a product that already exists
Why do businesses innovate
Businesses innovate because they cannot stand still in the competitive markets
If a firm comes up with an innovation that is a sucess thye can guarantee future income if protected by a patent
Eventhough it is expensive losing future markets is more costly
What are the risks when innovating
Firms can make big loses if the innovation fails
Other companies will also innovate
Legal implications often arise with other firms questioning if it really is innovation
What are the benefits of innovating
Creates a unique selling point (USP)
less competition due to patents
more effficient and cost effective production
What are the disadvantages of innovation
can be very costly for R&D stage and a drain on all resources
For innovations there is an opportunity cost
Few innovations are actually made fully so can be a big financial waste for the firm
Why are they givenan incentive to increase market power
Because there are hugh fixed costs from investing money into research and development.
They have to produce significant Output to recoup investment prices Requires increased scale of production
Creates barriers of entry for other competition
Increases market power
what does differentiation mean
differentiation means being able to offer a product or service that stands out from the competition
The product has to stand out USP
Has to be promoted to create want, exclusivity and brand loyalty
What is product innovation
Changing a product that already exists or developing an invention into a brand new product
What is process innovation
Process innovation is changing a process of production that already exists or putting into practice a new production process
What is the role of state funding
The state will often provide firms with funding if they are innovative
The gov will fund innovation in areas like science, technology and engineering
This helps high tech industries to grow - giving the uk differentiated industries
What is product lifestyle
This is a technique used to track the stages a product goes through during its life
It tracks sales over a period of time from release to removal from the market
WHat are the stages of product lifecycle
1) Development- negative cash flow due to market research and development. No sales rev before the launch
2)Introduction- Production and promotion costs can be high
3) Growth- sales revenue increases but as more units are sold production costs increases, but economies of scale start
4)Maturity -sales stabilize and product acts as a cash cow
5) Decline- at some point the product will start to lose sales
6) Extension strategies- many products are adapted to give them a new lease of life done through: changing the product e.g flavours and increasing promotion e.g repacking or targeting a new market
