Pearson Edexcel · A-Level · Economics B
Course version: 9EB0 · Version from Sept 2015
C) Product and process innovation
Full specification wording
Research and development (R&D) and innovation: c) Product and process innovation
Product innovation involves the development of new or significantly improved goods and services, aiming to increase consumer demand and market share through differentiation.
Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .
- Point 3 of 5
- 2 key terms
Study notes
From the checked teaching notes for this specification point.
The idea
Product innovation involves the development of new or significantly improved goods and services, aiming to increase consumer demand and market share through differentiation. For example, a technology firm releasing a smartphone with a revolutionary battery life is a product innovation. Conversely, process innovation focuses on implementing new or improved production and delivery methods. An example is a manufacturer adopting automated robotic assembly lines to reduce unit costs and increase productive efficiency. While product innovation typically drives revenue growth by adding value, process innovation enhances competitiveness primarily by lowering average costs and improving profit margins.
What earns the marks
- Identifies product innovation as the creation of new goods or services, or significant improvements to existing ones.
- Identifies process innovation as changes to the way a product is manufactured, distributed, or delivered.
- Links product innovation to increased market share, brand loyalty, and the ability to charge premium prices.
- Links process innovation to reductions in average costs, increased productive efficiency, and improved profit margins.
Common mistakes and how to put them right
Confusing product and process innovation.
Put it right: Product innovation changes what is sold to the consumer, whereas process innovation changes how the firm creates or delivers it.
Assuming process innovation only applies to manufacturing.
Put it right: Process innovation also applies to services, such as a bank introducing an automated online mortgage approval system.
Believing innovation is identical to invention.
Put it right: Invention is the creation of a new idea, while innovation is the successful commercial application of that idea into a product or process.
Exam tips
- Use process innovation to explain shifts in the supply curve or reductions in a firm's average cost curves.
- Apply product innovation when discussing non-price competition and strategies to reduce price elasticity of demand.
- Evaluate the risks of innovation, such as high research and development costs failing to yield commercially viable products or processes.
Try the lesson
The start of the Research and development (R&D) and innovation: c) Product and process innovation lesson, made from checked teaching notes for this specification point.
Have a go first
Which of the following scenarios best describes a process innovation rather than a product innovation?
Listen
Product innovation involves the development of new or significantly improved goods and services, aiming to increase consumer demand and market share through differentiation. For example, a technology firm releasing a smartphone with a revolutionary battery life is a product innovation. Conversely, process innovation focuses on implementing new or improved production and delivery methods. An example is a manufacturer adopting automated robotic assembly lines to reduce unit costs and increase productive efficiency. While product innovation typically drives revenue growth by adding value, process innovation enhances competitiveness primarily by lowering average costs and improving profit margins. A strong answer earns marks for these points. Identifies product innovation as the creation of new goods or services, or significant improvements to existing ones. Identifies process innovation as changes to the way a product is manufactured, distributed, or delivered. Links product innovation to increased market share, brand loyalty, and the ability to charge premium prices. Links process innovation to reductions in average costs, increased productive efficiency, and improved profit margins. A common slip: Confusing product and process innovation. Instead, product innovation changes what is sold to the consumer, whereas process innovation changes how the firm creates or delivers it. Exam tip: Use process innovation to explain shifts in the supply curve or reductions in a firm's average cost curves.
See it
Key words
Say what each word means before you turn the card.
Product innovation
Try answering aloud or in your head before turning the card.
Process innovation
Try answering aloud or in your head before turning the card.
See every definition
- Product innovation
- The development of new or significantly improved goods and services, aiming to increase consumer demand and market share through differentiation.
- Process innovation
- Implementing new or improved production and delivery methods, such as automated robotic assembly lines to reduce unit costs and increase productive efficiency.
Label the diagram
Some boxes have lost their names. Pick the right name for each number.
1Box 1
2Box 2
3Box 3
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