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Research & Development & Innovation (Product Life Cycle &…
Research & Development & Innovation
R&D is investment in research with the intention of improving goods & services, introducing new ones, or improving methods of production
Competitive Advantage Through Innovation
Firm has competitive advantage over another when products are deemed better than its competitors by customers
Can gain competitive advantage using price, quality & cost or through niche market - firms has unique feature which allows it to stand out & be superior to its competition
Firm gains cost competitive advantage when can lower its average costs & create max value to consumers - e.g. might have skilled workforce, cheap raw materials or effective technology
Is hard to maintain cost competitive advantage, so firms have to offer consumers other benefits as well as low price
Could be strong brand reputation & loyalty, or exceptional customer service
Incentive to Increase Market Power
R&D can help increase market power - can help give products a USP by differentiating them from rival products
Could help increase brand loyalty & revenue of the firms
e.g. technology changes rapidly in the phone industry > results in the development of products
Product & Process Innovation
Technological change can result in improvements in efficiency & productivity which could lower costs of production for firms
Quality & quantity of the goods & services produced might improve
e.g. mobile phones become cheaper to produce, why price has fallen - quality has improved significantly - due to improvement in technology
Technological change can lead to development if new products, the development of new markets & may destroy existing markets
e.g. development of DVDs, then blu-rays & rise in downloadable films - destroyed the market for VHS video tapes
Small & Medium Sized Enterprises (SMEs) are important for creating competitive market - create jobs, stimulate innovation & investment & promote a competitive environment
Schumpter > Creative destruction
Idea new entrepreneurs are innovative, which challenges existing firms - more productive firms then grow, whilst least productive are forced to leave the market
Results in expansion of economy's productive potential
Product innovation refers to small changes in the performance & features of a product - process innovation improves the production method of a good - becomes more efficient
Role of State Funding
Increases in R&D can contribute towards higher levels of economic growth - some benefits include increases in GDP, higher incomes & lower unemployment rates
But, benefits of R&D are limited, since not enough is done > related to market failure, since +ve externalities of R&D aren't always fully understood
Also, expensive for firms to undertake R&D
To overcome this, state provides funding for R&D
Government might provide a subsidy in order to lower the costs of production for a produces & to encourage them to produce more of a certain good > particularly case fro merit goods
Possible disadvantage of this is opportunity cost to the Government & the potential for higher taxes to fund the extra Government spending
Firms could become inefficient if they rely on subsidies, since they have little incentive to lower their costs - could also be Government failure if inefficient industries are subsidised
Product Life Cycle & Extension Strategies
During the development & growth stages, sales of growth are increasing, so firm is making increasing revenues
During the decline stage, sales of the product flatten out - getting to this stage requires promotion & marketing strategies - often expensive
When the product reaches the decline stage, firm has to decide whether to use an extension strategy to increase the sales of the product, or remove the product from the market
Extension strategies aim to lengthen the useful life of a product before it goes into decline
When the product is introduced, firm is still researching & developing the product before launching it
Firms could use marketing techniques in order to improve sales - e.g. firms might spend more advertising in order to make the product more widely known & more appealing
Other marketing techniques include changing the packaging & branding, changing the price or adding value to a good