Diffusion of Innovation

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Diffusion of Innovation
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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.

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• 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

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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

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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

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Diffusion of innovation

• A process 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

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Diffusion variables

• Innovation
• Communication
• Time
• Social system

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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

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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

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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

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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

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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.

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Characteristics that encourage rejection

• Value barrier
• Usage barrier
• Risk barrier

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Speed of diffusion

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

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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

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The Adoption Decision ProcessEverett Rogers
Knowledge
Persuasion
Decision
Implementation
Confirmation
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Adopter classes

• Innovators - 2.5
• Early adopters 13.5
• Early majority 34
• Late majority 34
• Laggards 16

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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

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Parameters for innovativeness

• Socio-economic variables
• Personality and attitude
• Communication variables

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Socio economic variables

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

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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

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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

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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.