3.3.4

Benefits & Risks of New Products

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Benefits of Developing New Products

Developing new products can have a number of benefits for a business. Usually, the benefits are because of:

Higher sales

Higher sales

  • New products can be sold to new customers. They can attract new customers who aren't interested in existing products.
  • Or new products can be cross-sold to existing customers. Each customer may buy more products from the company.
Brand value

Brand value

  • Brand value is a brand's reputation. Selling more products can improve a firm’s reputation.
  • Google (now part of Alphabet) has a division called Google X. Google (or Alphabet) still makes almost all of its revenue from Advertising, but it has projects trying to build self-driving cars and balloons that spread internet connections. This may increase the value of Google’s brand.
  • You are more likely to buy a Ralph Lauren shirt if you have bought a good Ralph Lauren polo shirt in the past.
Diversification

Diversification

  • Diversification is not putting all of your eggs in one basket.
  • Having lots of options reduces the overall risk of a business.
  • If a business invested all of their finance into aeroplanes and then someone invents teleportation, then their whole business would fail. Investing in restaurants would diversify the business.

Risks of Developing New Products

When a business develops new products, there are always risks. Some of these are:

Investment

Investment

  • If a new product or service fails, it is likely that a business will lose all of its investment (money spent on the project).
    • Virgin, the company that operates trains (Virgin Trains) and aeroplanes (Virgin Atlantic), tried to launch Virgin Cola to compete with Pepsi and Coca Cola. However, the business did not succeed and was shut down. Virgin lost a lot of their investment in the project.
Damage brand

Damage brand

  • If a new product or service is not good quality or people simply don’t want to buy it, then this can negatively affect other areas of the business, like the business’ brand value.
    • The luxury fashion brand Gucci opened a restaurant in Shanghai called 1921 Gucci. If customers got food poisoning, then people may be less likely to buy Gucci handbags in future.
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1

Understanding Business Activity

1.1

Business Activity

1.1.1Purpose of Business Activity1.1.2Customer Needs1.1.3Why are Businesses Set Up?1.1.4Specialisation & Division of Labour
1.2

Classification of Businesses

1.2.1The 3 Sectors of Economic Activity1.2.2Public & Private Sector
1.3

Enterprise, Business Growth & Size

1.3.1Business Aims1.3.2Business Objectives1.3.3Different Businesses Have Different Objectives1.3.4Business Objectives Change Over Time1.3.5End of Topic Test - Business Objectives1.3.6Enterprise1.3.7Risks1.3.8Rewards1.3.9Entrepreneur1.3.10Role of the Entrepreneur1.3.11Encouragement of Enterprise1.3.12Business Plans1.3.13Advantages & Disadvantages of a Business Plan1.3.14The Main Parts of a Business Plan1.3.15Methods of Measuring Business Size1.3.16Business Expansion - Internal Expansion1.3.17Advantages of External Expansion1.3.18Disadvantages of External Expansions1.3.19Small Businesses1.3.20Reasons for Business Failure
1.4

Types of Business Organisation

1.4.1Sole Traders1.4.2Partnerships1.4.3Limited Companies1.4.4Private Limited Companies1.4.5Public Limited Companies1.4.6Unlimited vs Limited Liability1.4.7Not For Profit1.4.8Franchising1.4.9End of Topic Test - Business Ownership1.4.10Application Questions - Business Ownership1.4.11Diagnostic Misconceptions - Company vs Business
1.5

Business Objectives & Stakeholder Objectives

1.5.1The Main Stakeholders in a Business1.5.2The Impact & Influence of Stakeholders on Business1.5.3Diagnostic Misconceptions - Profit1.5.4Diagnostic Misconceptions - Owners vs Shareholders
2

People in Business

2.1

Human Resource Management (HRM)

2.1.1Contracts of Employment2.1.2Recruitment2.1.3Benefits of an Effective Recruitment Process2.1.4Reducing the Workforce2.1.5Legal Controls Over Employment2.1.6Training2.1.7End of Topic Test - The Workforce2.1.8Application Questions - The Workforce2.1.9Diagnostic Misconceptions - Recruitment
2.2

Organisation & Management

2.2.1Internal Organisational Structures2.2.2Business Functions & Definitions2.2.3Centralised vs. Decentralised Structures2.2.4Tall & Flat Organisations2.2.5The Impact of Organisational Structure on Managing2.2.6Leadership Styles2.2.7Trade Unions2.2.8End of Topic Test - Org Structure
2.3

Methods of Communication

2.3.1Communication in Businesses
2.4

Motivating Employees

2.4.1Motivation in the Workplace2.4.2Financial Methods of Motivation2.4.3Non-Financial Methods of Motivation2.4.4Diagnostic Misconceptions - Money
3

Marketing

3.1

Marketing & the Market

3.1.1Customer Needs3.1.2Identifying and Satisfying Customer Needs3.1.3The Market3.1.4The Market-Driven Approach3.1.5Competition3.1.6The Impact of High Competition3.1.7Diagnostic Misconceptions - Competition3.1.8Market Segmentation3.1.9Methods of Market Segmentation
3.2

Market Research

3.2.1Market Research3.2.2Qualitative & Quantitative Research3.2.3Primary Market Research3.2.4Secondary Market Research3.2.5Analyse Market Research Data3.2.6Application Questions - Marketing3.2.7End of Topic Test - Marketing
3.3

Marketing Mix

3.3.1The Product Life Cycle3.3.2Product Design3.3.3Product Portfolio & The Boston Matrix3.3.4Benefits & Risks of New Products3.3.5Extension Strategies3.3.6Price3.3.7Pricing - Skimming & Penetration3.3.8Competitive and Cost-Plus Pricing3.3.9Market Mapping - Price vs Quality3.3.10Place3.3.11Manufacturer-Wholesalers-Retailers-Customers3.3.12Manufacturer-Retailers-Customers3.3.13Direct to Customers3.3.14Promotional Methods3.3.15Reasons for Promotion3.3.16Advertising3.3.17Advertisement - Product Placement3.3.18Public Relations3.3.19Sales Promotion3.3.20Sponsorship3.3.21Social Media3.3.22Promotional Mix3.3.23E-Commerce and M-Commerce3.3.24Benefits & Drawbacks of E-Commerce and M-Commerce3.3.25End of Topic Test - Marketing Mix3.3.26Grade 9 - Marketing Mix3.3.27Diagnostic Misconceptions - Decreasing Price3.3.28Diagnostic Misconceptions - Advertise vs Promote3.3.29Diagnostic Misconceptions - Social Media3.3.30Marketing Strategy3.3.31Entering Foreign Markets
3.4

Legal Controls

3.4.1Legal Controls on Marketing
4

Operations Management

4.1

Production of Goods & Services

4.1.1Production Processes Overview4.1.2Job Production4.1.3Flow Production4.1.4Batch Production4.1.5Production Efficiency - Lean Production4.1.6Managing Stock - Just in Time4.1.7Technology & Production4.1.8Factors of Production4.1.9Diagnostic Misconceptions - JIT vs JIC
4.2

Cost, Scale of Production & Break-Even Analysis

4.2.1Costs4.2.2Costs - Calculations4.2.3Economies of Scale4.2.4Diseconomies of Scale4.2.5Break-Even Analysis4.2.6Profits and Losses - Calculations4.2.7Diagnostic Misconceptions - Fixed Costs4.2.8Diagnostic Misconceptions - Economies of Scale4.2.9Diagnostic Misconceptions - Break-Even
4.3

Achieving Quality Production

4.3.1Importance of Quality4.3.2Measuring Quality4.3.3Quality control4.3.4Total Quality Management4.3.5Benefits of Maintaining High Product/Service Qual.4.3.6Costs of Maintaining High Quality/Service4.3.7End of Topic Test - Operational Decisions
4.4

Location Decisions

4.4.1Business Location4.4.2Nature of Business Activity
5

Financial Information & Decisions

5.1

Business Finance

5.1.1Finance5.1.2Sources of Finance5.1.3Factors Affecting Financing
5.2

Cash Flow Forecast

5.2.1Cash Flow5.2.2Cash Flow Forecasts5.2.3Consequences of Cash Flow Problems5.2.4Cash Flow - Calculations5.2.5Solutions to Cash Flow Problems5.2.6Diagnostic Misconceptions - Cash Flow
5.3

Profit & Loss

5.3.1Profit5.3.2Profit - Calculations5.3.3Financial Statements5.3.4Income Statements5.3.5Financial Data5.3.6Information from Graphs & Charts5.3.7End of Topic Test - Finance5.3.8Grade 9 - Finance
5.4

Statement of Financial Position

5.4.1Elements of a Statement of Financial
5.5

Analysis of Accounts

5.5.1Gross Profit5.5.2Liquidity5.5.3Gross Profit - Calculations5.5.4Net Profit5.5.5Net Profit - Calculations5.5.6Operating Profit Margin5.5.7Markup5.5.8Return on Capital Employed (ROCE)5.5.9Current Ratio & Acid Test Ratio
6

External Influences on Business Activity

6.1

Economic Issues

6.1.1Business Cycle6.1.2Objectives of Government Economic Policy6.1.3Provision of Public Services6.1.4Taxation & Constraints on Public Spending6.1.5The Government & Business Activity6.1.6Interest Rates6.1.7Interest Rates - Calculations6.1.8Diagnostic Misconceptions - Recession
6.2

Business & the International Economy

6.2.1Multinational Companies6.2.2Exchange Rates
6.3

Business & the Environment

6.3.1Globalisation6.3.2Environmental Issues6.3.3Business and Sustainability
6.4

Business & Ethical Issues

6.4.1Ethical Considerations for Businesses6.4.2Benefits of Being Ethical
6.5

Pressure Groups

6.5.1Pressure Groups

Practice questions on Benefits & Risks of New Products

Can you answer these? Test yourself with free interactive practice on Seneca — used by over 10 million students.

  1. 1
    What are the 3 main benefits of new products?Fill in the list
  2. 2
    How did the Apple Watch help Apple?Multiple choice
  3. 3
    Which of these are benefits of developing new products?True / false
  4. 4
    Which of these are risks of developing new products?True / false
  5. 5
    When Virgin Cola was shut down, what happened to Virgin's money?Multiple choice
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Product Portfolio & The Boston Matrix

Extension Strategies