The Economics and Governance of Innovation and Institutions Essay

The Economics and Governance of Innovation and Institutions - Essay Example Innovations are associated with basic and radical transformations in an organization’s operations, and can be triggered by factors such as technological advancement, increased competition and quality standards among other aspects of the external environment. Through innovation, firms are able to capitalize on strengths and to take opportunity over competitors’ weaknesses. This paper discusses the reasons why innovation processes may exhibit different features in different industries. Definitions of Key Terms Innovation- a process of transforming an idea in to a product or service. This is forms the foundation of this paper Consumer decision making process- a process through which consumers make decisions on whether to buy a product or service. It affects acceptance of innovative products Product differentiation- production of distinct products allowing consumers a wide variety of products to choose from. It results from product innovation Features of Innovation in Diffe rent Industries Pavit (1984) established that innovation originates from the application of creative ideas to develop marketable products from the existing ones. ... Customer preferences change with time and therefore continuous assessment of the market is needed. Innovations targeted at consumer satisfaction depend on research that helps managers to determine market dynamics in terms of consumer preferences. Malerba & Orsenigo (1997) present a perspective of constant brand extension to maintain a firm’s performance. Brand extension is a significant strategy used by firms in marketing whereby the name of a popular brand in the market is used to market an innovative brand from the same company. The spin-off, which is the new product, is unlikely to be known by consumers on its own. The brand name under which it is sold may encourage consumers since they associate it with the quality of the original product. Brand extension raises a firm’s profitability since it deals with various products. The attitude of consumers towards a particular brand determines the success of the firm in extending it (Pavit, 1984). The higher the value attach ed to the brand, the more a firm is likely to succeed in its extension. Moreover, the satisfaction derived from both products matters since the more related the products are in terms of utility, the more consumers are likely to accept the extended brand. Brand extension also revitalizes the diminishing image of the original brand (Nelson, 1991). Consumers in most situations are attracted to an innovative firm whereby they are presented with creative products that they believe are an advancement of the old brand. The new products make the old brand to reappear or become more frequent than before in the market. With the understanding that the new product has an added value, they are likely to