Diffusion of Innovations Chapter 11 Diffusion of Innovations Diffusion of Innovations

Diffusion In consumer behavior terms, refers to research on the consumer acceptance of new products and services Involves understanding two closely related processes: Diffusion: a macro process concerned with the spread of a new product--an innovation--from its source to the consuming public Adoption: the micro process concerned with the stages the consumer goes through in deciding to accept or reject a new product Derived from the Latin for “spread out”

The diffusion process Diffusion is the process by which the acceptance of an innovation--a new product, service, idea or practice is spread by communication--mass media, salespeople, or word-of-mouth to members of a social system--target market over a period of time Examples? Laser eye surgery

Four basic elements of the diffusion process: The innovation The channel of communication The social system Time

1. The innovation Innovation takes many forms There is no universally accepted definition of the terms product innovation or new product Instead, approaches to define the term have taken place within certain contexts: Firm-oriented definitions Market-oriented definitions Consumer-oriented definitions Product-oriented definitions Start by citing stats and examples in book (p. 353-4) of how businesses must continue to innovate or fail What is innovation? Examples of forms? In the computer industry, we have: Completely new technology (pc); changes to existing products (laptop); symbolic changes (shape of the iMac) …but FTC says if using term “new,” it has to be less than six months from initial distribution in the market In other words…is it “new” to the firm; to the market; does the consumer consider it new? We will focus on the last

Product-oriented definitions This approach focuses on the features inherent in the product itself and the effects these features are likely to have on consumers’ established usage patterns Robertson identified three types of product innovations: Continuous innovation Dynamically continuous innovation Discontinuous innovation

Continuous innovation Introduction of a modified product rather than a totally new product Little or no change in technology Has the least disruptive influence on established usage patterns Symbolic innovations tend to be continuous What is it? Examples? Redesigned automobile (new Beetle) Latest version of software program low-fat version of food product What are “symbolic innovations”? Symbolic innovations convey new social or psychological meanings designer jeans, skin care products for men, specialty coffees

Dynamically continuous innovation May involve a new product or modification of an existing product Some technical advances Still does not disrupt or alter consumer buying and usage patterns What is it? Examples? CD players; antilock brakes; disposable diapers; laptops; electric toothbrushes What about cell phones?

Discontinuous innovation Introduction of a pioneering product Involves a major technological advance Consumers must learn new behavior patterns May be difficult to market initially Is rare What is it? Examples? Airplanes; cars; home computer; fax machines; VCRs; internet Cell phone?

Product characteristics that influence diffusion Not all new products meet with immediate success No precise formula marketers can use to predict how consumers will react to their products Examples of those? Apple’s Newton Electric cars (book); trash compactors; composting toilets Examples of those that have succeeded? nutrasweet; disposable diapers (book); cordless phones

Researchers have identified five characteristics that appear to influence consumer acceptance Relative advantage Compatibility Complexity Trialability Observability

Relative advantage The degree to which potential consumers perceive a new product is superior to existing substitutes What is it? Examples? Cell phone over pager; fax machine over delivery services; Vinyl records to cassette to CD Floppy disks to CD’s

Compatibility The degree to which potential consumers feel a new product is consistent with their present needs, values and practices What does it mean? Examples? Gillette’s Mach 3 razor has become very popular… But unlikely men will accept a depilatory cream designed to remove facial hair (because incompatible with daily shaving practices) It is possible to make a very tiny phone, and they are popular in Japan, but Americans don’t like talking into space

Complexity The degree to which a new product is difficult to understand or use Obviously, the harder to understand, assemble or operate, the less its likelihood of being selected Examples? Cameras--drop-in film auto focus, built-in flash, etc. all added to make cameras easier to use VCR is an exception to this! Apple had a great ad a couple of years ago, comparing the size of the pile of documentation that came along with a new Windows-based computer and an Apple

Trialability The degree to which a new product is capable of being tried on a limited basis What does this mean? Examples? Free trial (samples) money-back guarantees--Total Gym (Chuck and Christie); America Online; Ron Popiel’s various products

Observability The ease with which a product’s benefits or attributes can be observed, imagined or described to potential consumers What is it? Examples? Fashions and jewelry (worn in public) vs. soap or deodorant Use of celebrities and athletes to wear/use products can enhance speed of adoption

2. Channel of communication Speed with which an innovation spreads through the market depends in great part on communications Between the marketer and consumer Between consumers (word-of-mouth) In recent years a number of new channels of communication have been developed The second element in the diffusion process is the… Examples? Company web sites ask consumers if they want to receive e-mails, etc. about new products Companies use floppy disks or CD-ROMS to promote products

3. The social system The physical, social, or cultural environment to which people belong and within which they function Members of a social system have at least one characteristic in common that makes them potential buyers of a particular product The values and norms of a social system will influence the acceptance or rejection of new products The third element in diffusion is… What is it? Why does this matter? Examples? Religion will affect acceptance of a new birth control method Older generation’s acceptance of computers, cell phones, etc.

Three characteristics of a social system influence spread of new products The degree of compatibility between innovation and values of members Homogeneity of members Across cultures, depends on social similarity of the cultures Examples? Diet pills and sugar-free food appeal to American desire to eat as much as they want, not exercise Hair care product for African-Americans in New York City vs. whites in upstate New York Similar? US and UK. Dissimilar? Christian vs. Muslim; but halal v. kosher?

4. Time Time relates to diffusion in three ways: Amount of purchase time Adopter categories Rate of adoption Time is the final element in the diffusion process

1. Purchase time Refers to the amount of time that elapses between a consumer’s initial awareness of a new product or service and the point at which he or she purchases or rejects it Important because is a predictor of the overall length of time it will take for the product to achieve widespread adoption What does it mean? See Kanuk Table 15-8 p. 421 for time line for typical purchase In other words, when individual purchase time is short, a marketer can expect the overall rate of diffusion will be faster

2. Adopter categories Involve a classification scheme that indicates where a consumer stands relative to other consumers in terms of when they adopt a new product (i.e., time) Five categories identified in research: Innovators Early adopters Early majority Late majority Laggards These are all explained well in reading, so won’t go into detail. However, worth mentioning that…

Opinion leaders Opinion leaders are most likely to be found among the early adopters category Opinion leadership is the process by which one person--the opinion leader--informally influences the actions or attitudes of others The key characteristic is that it takes place between two individuals, neither of whom represents a commercial selling source and is thus considered more reliable We’ll see this again later under the heading of “word of mouth”

Time and the Adopter Categories Innovators Graphically, adopter categories looks something like this “Average consumer” is right in the middle Adopter Categories Based on Innovativeness

The S-Shaped Diffusion Curve The S-Shaped Diffusion Curve for Beanie Babies A pattern of market acceptance for an innovation that begins slow, then accelerates, and finally slows-down. Graphically, diffusion looks something like this—an “S” shape Why does the curve ultimately flatten out? Because after a while most people who were going to purchase the innovation have already done so.

3. Rate of adoption How long it takes a new product or service to be adopted by members of a social system Rate of adoption generally is becoming faster Diffusion of products worldwide is becoming more rapid as well Marketers generally desire as fast a rate of adoption as possible in order to dominate a market before competitors enter The third time-related factor is… What is it? E.g., it took 12 years longer for black and white tvs to reach the same level of “penetration” in Europe and Japan as in US; for color TVs, 5 years in Japan and slightly longer in Europe; for VCR’s, 3-4 years (with the US lagging); for CD players, about 3 years.

“Skimming” Sometimes marketers don’t seek a rapid rate of adoption Making the product available at a very high price to consumers who are willing to pay top dollar, then gradually lowering the price over time for additional segments of the market Permits manufacturers to recover development costs more quickly Skimming is a practice related to rate of adoption What is it and when might it be used? Examples? VCR’s originally sold for $700; now $100 for a better product (sometimes also the result of better technology, e.g., computers)

The adoption process Series of stages the consumer moves through in arriving at a decision to purchase or reject a new product Five stages include Knowledge/awareness Persuasion/interest Decision/evaluation Implementation/trial Confirmation/adoption (rejection) Nicely covered in book, so won’t go into detail A simplistic model that doesn’t account for full complexity of consumer decision process, but is still useful Consumer is first exposed to the product innovation (e.g., an ad on television) Consumer is interested and seeks and obtains information about the product; develops a favorable or unfavorable attitude toward the product Consumer decides whether the product will meet his/her needs Consumer uses the product on a limited basis (e.g., a 14-day money-back guarantee) If trial is favorable, consumer decides to use the product on a full, rather than limited basis/or rejects it

Resistance to adoption Researchers have identified five factors that may result in consumers’ failure to adopt a new product Value barriers Usage barriers Risk barriers Tradition barriers Image barriers Again, these are explained well in text and will not cover in detail Focus on #4: Tradition barriers Language and cultural norms sometimes get in the way of adoption outside the U.S. Examples in book p. 378 Some famous instances of language barriers have turned out to be “urban legends” Chevy Nova Other examples (see web articles in file) Sometimes cultural differences can raise serious problems: Nestle/infant formula--not considering quality of water and mothers’ dilution of product due to low incomes

Table 15.11 The Stages in the Adoption Process NAME OF STAGE WHAT HAPPENS DURING THIS STAGE EXAMPLE Awareness Consumer is first exposed to the product innovation. David sees an ad for a new digital camera in the newspaper. Interest Consumer is interested in the product and searches for additional information. David reads about the camera on the manufacturer’s Web site, ad then goes to a camera store near his office and has a salesman show him the camera. Evaluation Consumer decides whether or not to believe that this product or service will satisfy the need--a kind of “mental trial.” After talking with a knowledgeable friend, David decides that his camera should be able to provide him with the photos he needs to use in PowerPoint presentations. He also likes the fact that it uses “standard” floppy disks for storage.

Table 15.11 The Stages in the Adoption Process NAME OF STAGE WHAT HAPPENS DURING THIS STAGE EXAMPLE Trial Consumer uses the product on a limited basis Since camera cannot be “tried” like a small bottle of a new shampoo, David buys the camera from a dealer offering a 14-day full refund policy. Adoption (Rejection) If trial is favorable, consumer decides to use the product on a full, rather than a limited basis--if unfavorable, the consumer decides o reject it. David finds that the camera is easy to use and the results are excellent; consequently, he keeps the digital camera.