Diffusion of Innovation

NEW PRODUCT ADOPTION AND DIFFUSION PROCESS

Fads & Fancies whats next?

Slang

Stocks

Clothing & Appearance

Toys

New products in the market

Every year around 5000 new products appear in the market. However, most fail and only a few remain ( around 20%). Products which are innovative.

Why Some New Products Fail and Others Succeed

80 to 90% Fail. Why?
Failure to Meet Customer Needs Poor Timing Market Conditions Ineffective or Inconsistent Branding Technical or Design Problems Overestimation of Market Size Poor Promotion Insufficient Distribution

Why does this happen?

Macromarketing issues Valuable resources are wasted which might have been deployed towards more productive uses Products that might have helped people do things more productively or attain higher levels in their quality of life, fail to be used Successful products are those that become culturally anchored.

Micromarketing issues Succesful new product development is an important element in achieving long term competitive superiority and profitability,especially in low growth markets New product development plays an important role in market leadership and profitability. Market leaders normally have three times higher returns than firms with lower market shares A successful new product can be the beginning of a whole new company

The value chain

Contemporary firms are being attacked by competitively on every dimension and from every direction. The only way to survive this onslaught is to create a value chain to serve the customer, which will serve to differentiate the successful firm from its competitors and will provide competitive superiority on the critical attributes of importance to the consumer

What is an innovation?
It is any idea or product perceived by the potential adopter to be new. New products are ideas, behaviour or things that are qualitatively different from existing forms

Diffusion of innovation
A process by through which a new product moves from initial introduction to regular purchase and use A process by which an innovation (idea) is communicated through certain channels over time among the members of a social system Everett Rogers

New Product Adoption Theory

ADOPTION PROCESS - The consumer decision stages that lead to innovation acceptance/rejection - A micro process process that focuses on internal forces of the consumer * Intra Personal (Psych) Influences * Inter Personal (Social) Influences * Product Selection Criteria

New Product Diffusion Theory

DIFFUSION PROCESS.
- the spread of an innovation from its. source to the ultimate consumer. - a macro process that focuses on external. forces on the consumer (change agents, channels of information, types of. information). - occurs in a social system (a target. audience, community, etc.

Speed of Diffusion
is influenced by
* * * * * Competitive Intensity (+) Good Supplier Reputation (+) Standardization of Technology (+) Vertical ( ) Channel Coordination (+) ($) Resource Commitments (+)

The Adoption Decision Process

How an individual consumer acts . . .

KNOWLEDGE

PERSUASION

DECISION

TIME

CONFIRMATION

IMPLEMENTATIONS

Diffusion variables
Innovation Communication Time Social system

Types of Innovations
Continuous modification or improvement of an
existing product

Dynamically continuous may involve the

creation of either a new product or the alteration of an existing one ,but does not generally alter established patterns of customer buying and product use

Discontinuous production of an entirely new

product that causes customers to alter their behaviour patterns significantly

Innovations include both a hardware and a software component

The hardware are the physical and tangible aspects of a product. The software is the understanding consumers values and lifestyles

Likelihood of innovation success

Relative advantage new products that are most likely to
succeed are those that appeal to strongly felt needs

Compatibility

degree to which the product is consistent with existing values and past experience of the adopters

Complexity degree to which an innovation is

perceived as difficult to understand and use Trialability the ability to make trials easy for new products without economic risk to the consumer

Observability reflects the degree to which results from

using a new product are visible to friends and neighbours

Types of Innovators
Cognitive problem solving, cerebral, new mental
experience

Sensory fantasy, day dreaming, hedonistic, thrill

seeking

Monomorphic - consumers who are innovators for one

type of product

Polymorphic consumers who are innovators for more than one type of product

Characteristics that encourage rejection

Value barrier Usage barrier Risk barrier

Speed of diffusion
Competitive intensity Reputation of the supplier Standardised technology Vertical coordination Resource commitments

Communication of new products

Mass media WOM Homophily degree to which pairs of individuals who
interact are similar in beliefs, education and social status

Heterophily inconsistent with own beliefs and views

The Adoption Decision Process

Everett Rogers Knowledge

Persuasion Decision

Implementation

Confirmation

Adopter classes
Innovators - 2.5% Early adopters 13.5% Early majority 34% Late majority 34% Laggards 16%

Categories of Adaptors to Innovations

Innovators Early Adopters 13.5%
Localized opinion leaders, missionary, role models, respected

Early Majority 34%

High interaction, non-leaders, linkers, deliberate

Late Majority

Laggards

2.5%
Cosmopolitan, networks, low risk aversion, courage, curiosity

34%
Economic necessity, social & peer pressure, skeptical

16%
Past oriented, isolated, suspicious of change & change agents

General trends for early adopters:

Higher education, literacy, intelligence, achievement, aspirations Higher Social Economic Status, occupational status, social mobility, income Greater empathy, flexibility, social participation, media exposure Opinion leadership, well-integrated with system

Innovativeness
This is the degree to which an individual adopts an innovation relatively earlier than others Based on time of adoption Based on number of new product adoption

Diffusion Process, Adopter Categories

INNOVATORS - are first to buy and typically described as venturesome, younger, well educated, financially stable, and willing to take risks.
EARLY ADOPTERS - are local opinion leaders who read magazines and who are integrate into the social system more than the average consumer.

Diffusion Process, Adopter Categories

EARLY MAJORITY - solid, middle-class consumers who are more deliberate and cautious
LATE MAJORITY - described as older, more conservative, traditional, and skeptical of new products

Diffusion Process, Adopter Categories

Laggards
Resist change Conservative Like tradition Often older & lower in socioeconomic status
OK, we will

buy X.
If I have to buy it I will.

Nonadopters
Refuse to change
No way!

Parameters for innovativeness

Socio-economic variables Personality and attitude Communication variables

Characteristics of New Product Success

RELATIVE ADVANTAGE - is an enhanced bundle of benefits or clear-cut advantages over existing offerings (+)

Characteristics of New Product Success

Compatibility with existing habits, values and consumption behavior, similar usage as existing products

Characteristics of New Product Success

Trial abilityexperience or see the newness
Easily tested Low risk Inexpensive No special equipment Free samples or coupons

Sample size

Demo days

Characteristics of New Product Success

OBSERVABILITY - is the opportunity for buyers to see the newness (+)
COMPLEXITY - is a disadvantage for new products which slows diffusion and may be offset by simplifying usage or through extensive education (-)

Communication Flows
Two-Step Flow of Communication
COMPANY MESSAGE

OPINION LEADERS

TARGET AUDIENCES

Positions of Status
OPINION LEADER - one who occupies a position of
informal influences over the attitudes and overt behavior of others. Opinion leadership is earned not assumed.

CHANGE AGENT - one who occupies a professional

position of formal influence associated with a given role of status. Change agent status is assumed, not necessarily earned

FOLLOWER - not a passive patsy.

influence.

Actively seeks

Characteristics of Opinion Leaders in contrast with their followers

More like, than unlike, their followers More technically competent More socially accessible More cosmopolitan More innovative (receptive to change) Higher media exposure (more informed) Higher social status More conformist with social norms and values

Socio economic variables

Education Literacy Higher social status Upward social mobility Larger-sized units Commercial orientation Favourable attitude towards credit Specialized operations

Personality and attitude

Empathy Ability to deal in abstraction Rationality Intelligence Favourable attitude towards change Ability to cope with uncertainty Favourable attitude towards education Favourable attitude towards science High aspirations

Communication variables
Social participation Interconnectedness with the social system Cosmopoliteness Change agent contact Mass media exposure Exposure to interpersonal communication channels Knowledge of innovations Opinion leadership Belonging to highly interconnected systems

Polymorphism
The degree to which innovators and early adopters for one product are likely to be innovators for other products. Consumers who are innovators for one product are monomorphic. Consumers who are innovators for more than one product are polymorphic.

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