Innovation Management Kevin O’Brien Diffusion & Adoption of Innovations

Learning Objectives Understand the early stages of the product life cycle Identify factors affecting innovation adoption Appreciate the role of social networks in diffusion Identify key issues in marketing new products

What is diffusion? “Diffusion is the process by which an innovation is communicated through certain channels over time among the members of a social system.” “It is a special type of communication, in that the messages are concerned with new ideas.” (Rogers, 1995)

Diffusion of Innovation M Time Cumulative Adopters T Time Non-cumulative Adopters T (Rogers, 1995)

Time to First Adoption Case A Case B Elapsed time from product launch Unit sales (adoption) Case A demonstrates the impact of exponential sales growth when the first adoption is secured twice as quickly as in case B

Factors Affecting Diffusion Adoption decision process Characteristics of the innovation Adopter characteristics Network connectedness Communication channels

Adoption Decision Process Rate of diffusion is influenced by the level of perceived buying risk: High involvement – low involvement Adoption decision process: Knowledge Awareness of needs, awareness of innovation Persuasion Evaluation, attitude formation Decision Choice, trial – adoption/rejection Implementation Putting innovation into use, technical issues, behaviours Confirmation Reinforcement of decision made, discontinuance? (Rogers, 1995)

Characteristics of the Innovation Rate of diffusion is influenced by the characteristics of the innovation: relative advantage over previous solutions compatibility with existing ways of doing things complexity in use ease of low risk trial ability to communicate innovation’s benefits observability of benefits (Rogers, 1995)

Adopter Characteristics Rate of diffusion is influenced by adopter characteristics: Innovators enthusiasts novelty value Early adopters visionaries see advantages opinion leadership Early majority deliberate willing adopters followers Late majority conservative economic necessity safe to adopt Laggards traditional cautious Sloths avoidance isolation virtue of non-adoption (after Moore, 1991)

Adopter Characteristics TIME SALES Innovators 2.5% Early Adopters 13.5% Early Majority 34% Late Majority Laggards Sloths Pioneers Pragmatists Sceptics (Rogers, 1995; Moore 1991)

Network Connectedness Earlier adopters are more “network connected” More predictive than individual adopter characteristics Word-of-mouth Opinion leaders Influence others High number of network links Competent & trustworthy experts Shared meanings, beliefs, understandings Adopter B C A D Sales Publications Events Sponsorship Advertising (Rogers, 1995)

Marketing Communications Media communications Awareness, interest One-step model: sender-receiver, stimulus-response Personal communications Trial, adoption High risk situations Two-step model Media communications picked up by opinion leaders and then passed on to other members of the intended audience Identifying/influencing opinion leaders? Communication strategy

Diffusion Modelling The Bass Model for Forecasting Rate of Adoption Adoptions due to mass media Adoptions due to interpersonal communication Time Non-cumulative adoptions The Bass Model for Forecasting Rate of Adoption (Bass, 1969; Mahajan, Muller & Bass, 1990)

Crossing the Chasm Novelty Value Functional Value Sales Time CHASM Innovators Early Adopters Early Majority Late Majority Laggards Sales Time CHASM Sloths (Moore, 1991)

Early-Market Strategies Marketing to the visionaries: establish reputation “best possible solution” (brilliant technology) small number of visionaries buying customised products high levels of technical support The chasm: small numbers of customers with high investment requirements profits squeezed (Moore, 1991)

Marketing to the Mainstream Marketing to the pragmatists: complete end-to-end solutions whole product core, expected, augmented “best solution possible” (focus on needs) simplification, user-friendliness partnerships, collaborations (Moore, 1991)

Targeting the Majority When to target the majority rather than innovators? declining influence of innovators on the majority consumer markets (lead users in industrial) relatively low ratio of innovators to majority innovator profitability falling slow rate of market acceptance high cost of capital (Mahajan & Muller, 1998)

References Bass, F.M. (1969) A new product forecasting model for consumer durables, Marketing Science, 15 (2), 215-27. Mahajan, V., Muller, E. and Bass, F.M. (1990) New product diffusion models in marketing: a review and directions for research, Journal of Marketing, 54 (January), 1-26. Mahajan, V. and Muller, E. (1998) When is it worthwhile targeting the majority instead of the innovators in a new product launch? Journal of Marketing Research, 35 (November), 488-495. Moore, G.A. (1991) Crossing the chasm, New York: Harper Collins. Rogers, E.M. (1995) Diffusion of innovations, 4th Ed. New York: Free Press.