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.