1. Eager Sellers and Stony Buyers
Psychology of new product adoptions
John T. Gourville –HBR
Three pronged strategy to promote customer adaptations of new products
Gauge potential consumer resistance
Minimise consumer resistance
Manage consumer resistance

2. Cases of Webvan (online retail store); Segway (scooters) ; TiVo (DVR)
Despite upbeat innovative mood of manufacturers, products/services failed – consumer resistance to anticipated behavioural changes
Behaviourial changes entails costs to consumers-transaction costs, (e.g. activation fee for a new mobile service provider); learning costs (e.g. shift from manual to automatic transmission); obsolescence costs ( e.g. VCRs to DVDs)
Importantly, companies tend to ignore the important element of ‘psychological costs’
People irrationally overvalue benefits that they currently possess
relative to that they don’t !

3. Curse of innovation in products
Clash in perspectives: Executives irrationally overvalue their innovations and predict an over optimistic view of potential consumer conversions-disastrous results: consumers reject new products, while executives are at a loss to anticipate failure… a situation of a double –edged bias
1960s, communications scholar, Everett Rogers came up with a concept called “ relative advantage” as a critical driver of ‘new product adoption'
…this failed to capture the all important factor of psychological biases that affect decision making
In 2002, Daniel Kahnenman, won the Nobel prize in economics for a body of work relating to psychological reasons impacting rational decision making by consumers
Kahnenman and Amos Tversky ( psychologist) developed four factors in the decision making process of consumers

4. Contd..
People evaluate buying options not on objective value but its ‘perceived value’
They evaluate options with reference to a ‘reference point’-the products or services they already own or consume
They treat any improvements relative to this reference point as gains and all shortcomings as losses
Most importantly, losses have a far greater impact on people than similarly sized gains, a phenomenon they called as “ loss aversion”
e.g.: studies show that people will not accept a bet where there is a 50% chance of winning a $100 and a 50% chance of losing a
$ 100 !
Gains from wager must outweigh losses by a factor of two and three
for consumers to find the deal attractive!. losses loom larger than gains

5. Contd..
the endowment effect: loss aversion leads people to value products they already possess. those that are part of their endowment- more than those they don’t have.. Behavioural economist, Richard Thaler calls this the endowment effect, namely, consumers value what they own, but will have to give up much more than what they value what they don’t own but could obtain.. sellers almost always demand as much as twice what the choosers would pay to obtain a product
Economist William Samuelson and Richard Zeckhauser: “ status quo bias”.. people demonstrate this behaviour in respect of investments, automobiles and jobs

6. Trade-offs in innovations …examples
Innovations what consumers gain by buying what consumers lose by buying
Electric cars Clean environment Easy refuelling
Digital video recorder Easy recording Ability to play rented movies
E-books Easy portability Durability
On-line grocery shopping Home delivery Ability to select freshest products
Satellite radio Broad selection free music

7. The 9 X Effect. Consumers are usually
Skeptical about a new product performance
Unable to see the need for it x >>> Consumers overweigh the incumbent product’s benefits by a factor of three
Satisfied with an existing product
Quick to see what they already own as the status quo
Companies are often
Convinced that innovation works x >>> Companies overweigh the new product’s
the new product’s benefits by a factor
of three
Likely to see a need for the product (9x effect)
Dissatisfied with the existing substitute and
Set on viewing the innovation as the benchmark

8. Capturing value from innovation
The more companies change how products work, the more behaviour change they demand from consumers. While companies can create value through product changes, they can capture it most easily by minimising the need for consumers to change.
Four types of Innovations
Low
EASY SELL SMASH HITS
(limited product and behavioural
changes) (significant product changes, limited
behavioural changes)
SURE FAILURES
( limited product changes, significant
behavioural changes) LONG HAULS ( significant product and
High
Low High