Benefits and Risks of New Products

Business: Edexcel IGCSE, topic 4.3.8

Benefits of Developing New Products

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

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 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 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.

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

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.

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.