4.3.8

Benefits and 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

Business Activity & Influences on Business

1.1

Business Objectives

1.1.1Business Aims1.1.2Business Objectives1.1.3Business Objectives Change Over Time1.1.4End of Topic Test - Business Aims1.1.5Diagnostic Misconceptions - Profit
1.2

Types of Organisations

1.2.1Sole Traders & Partnerships1.2.2Limited Companies1.2.3Limited Liability1.2.4Unlimited vs Limited Liability1.2.5Not For Profit & Franchises1.2.6Multinational Companies1.2.7End of Topic Test - Business Ownership1.2.8Application Questions - Business Ownership1.2.9Diagnostic Misconceptions - Company vs Business1.2.10Diagnostic Misconceptions - Owners vs Shareholders
1.3

Classification of Businesses

1.3.1Sectors
1.4

Decisions on Location

1.4.1Location
1.5

Business & the International Economy

1.5.1Globalisation1.5.2Exchange Rates
1.6

Government Objectives & Policy

1.6.1Government Objectives1.6.2The Government & Business Activity1.6.3Interest Rates1.6.4Interest Rates - Calculations1.6.5Diagnostic Misconceptions - Recessions
1.7

External Factors

1.7.1External Factors
1.8

What Makes a Business Successful?

1.8.1Measuring Success1.8.2Reasons for Failure
2

People in Business

2.1

Internal & External Communication

2.1.1Communication
2.2

Recruitment & Selection Process

2.2.1Types of Employment2.2.2Recruitment Stages2.2.3Effective Recruitment2.2.4Legal Controls Over Employment2.2.5Diagnostic Misconceptions - Internal Recruitment
2.3

Training

2.3.1Training
2.4

Motivation & Rewards

2.4.1Motivation in the Workplace2.4.2Financial & Non-Financial Methods2.4.3End of Topic Test - The Workforce2.4.4Application Questions - The Workforce2.4.5Diagnostic Misconceptions - Money
2.5

Organisation Structures

2.5.1Organisational Structures2.5.2Centralised vs. Decentralised Structures2.5.3Tall & Flat Organisations2.5.4Functional Areas Within a Business2.5.5End of Topic Test - Org Structure
3

Business Finance

3.1

Sources of Finance

3.1.1Internal & External Sources of Finance3.1.2Factors Affecting Sources of Finance
3.2

Cash Flow Forecasting

3.2.1Cash Flow3.2.2Consequences of Cash Flow Problems3.2.3Cash Flow - Calculations3.2.4Solutions to Cash Flow Problems3.2.5Diagnostic Misconceptions - Cash Flow
3.3

Cost & Break-Even Analysis

3.3.1Costs, Revenue & Profit3.3.2Profit, Average Unit Cost & Interest3.3.3Costs - Calculations3.3.4Revenue - Calculations3.3.5Break-Even Analysis3.3.6Profit & Losses - Calculations3.3.7End of Topic Test - Finance3.3.8Grade 9 - Finance3.3.9Diagnostic Misconceptions - Fixed Costs3.3.10Diagnostic Misconceptions - Break-even
3.4

Financial Documents

3.4.1Financial Statements3.4.2Income Statement3.4.3Understanding Business Performance
3.5

Account Analysis

3.5.1Business Calculations3.5.2Gross Profit - Calculations3.5.3Net Profit - Calculations3.5.4Business Calculations 23.5.5Business Calculations 33.5.6Liquidity
4

Marketing

4.1

Market Research

4.1.1Market Research4.1.2Forms of Market Research
4.2

The Market

4.2.1Customer Needs4.2.2Satisfying Customer Needs4.2.3Market4.2.4The Competitive Environment4.2.5Market Segmentation4.2.6Market Mapping - Price vs Quality4.2.7End of Topic Test - Marketing4.2.8Application Questions - Marketing4.2.9Diagnostic Misconceptions - Competition
4.3

The Marketing Mix

4.3.1Price4.3.2Price Penetration4.3.3Other Forms of Pricing4.3.4Product Design4.3.5The Product Life Cycle4.3.6Extending Existing Products4.3.7New Products4.3.8Benefits and Risks of New Products4.3.9Promotion4.3.10Public Relations and Sales Promotion4.3.11Sponsorship & Social Media4.3.12Product Placements4.3.13Promotional Mix4.3.14Place4.3.15Place 24.3.16Place 34.3.17M-Commerce4.3.18Benefits & Drawbacks of M-Commerce4.3.19End of Topic Test - Marketing Mix4.3.20Grade 9 - Marketing Mix4.3.21Diagnostic Misconceptions - Decreasing Price4.3.22Diagnostic Misconceptions - Advertise vs Promote4.3.23Diagnostic Misconceptions - Social Media
5

Business Operations

5.1

Economies & Diseconomies of Scale

5.1.1Economies of Scale5.1.2Diagnostic Misconceptions - Economies of Scale
5.2

Production

5.2.1Production Processes5.2.2Flow and Batch Production5.2.3Production Efficiency5.2.4Technology & Production5.2.5Diagnostic Misconceptions - JIT vs JIC
5.3

Factors of Production

5.3.1Factors of Production
5.4

Quality

5.4.1Importance of Quality5.4.2Identifying Quality5.4.3Total Quality Management5.4.4End of Topic Test - Operational Decisions

Practice questions on Benefits and 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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