Diffusion of Innovation

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 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

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%

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

Parameters for innovativeness

Socio-economic variables
Personality and attitude
Communication variables

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.