2.2.4 Diffusion planning

Innovation diffusion is the process of the market penetration of new products and services driven by social influences, which include all the interdependencies among consumers that affect various market players, with and without their explicit knowledge.

Word of mouth

Signals

Network externalities

Consumers actively engage in collecting and processing information from previous adopters through verbal or written conversation

Any market information other than personal recommendation (e.g., imitation)

Products or services that generate network externalities, where the utility is directly affected by the number of users

Knowledge

Persuasion

Decision

Implementation

Confirmation

The individual is first exposed and becomes aware of an innovation and has some idea of how it functions but lacks comprehensive information

The individual takes the concept of the innovation and weighs the advantages/disadvantages of using the innovation and forms a favorable or unfavorable attitude toward the innovation

The individual takes the concept of the innovation and weighs the advantages/disadvantages of using the innovation and decides whether to adopt or reject the innovation

The individual employs the innovation to a varying degree depending on the situation and determines the usefulness of the innovation and may search for further information about it

The individual finalizes his/her decision to continue using the innovation and may use the innovation to its fullest potential

• Enable medium/long-term forecasts about saturation level, timing and magnitude of peak as well as the derivation of short-term forecasts

• Choice of underlying function determines the fit of the forecasting model

• Forecast of date when consumer adopts a product or technology
• Forecast of market volume and distribution of brands across respective market share models

• Diffusion process is binary (consumer either adopts or waits to adopt).

• Constant maximum potential number of buyers.

• Eventually, everybody adopts the product.

• No repeat purchase, or replacement purchase.

• The impact of word-of-mouth is independent of adoption time.

• Innovation is independent of substitutes.

• The marketing strategies supporting an innovation are not explicitly included.

• Uniform influence or complete mixing. That is, everyone in the population knows everyone else, or is at least able to communicate with or observe everyone else.

Unit sales in period t

Cumulative unit sales until period t-1

Market potential, the number of people who will eventually buy the product

Coefficient of external influence, the likelihood that somebody who is not yet using the
product will start using it because of external factors such as mass media coverage or advertising

Coefficient of internal influence, the likelihood that somebody who is not yet using the product will start using it because of social influence such as word-of-mouth

• Constant (fixed), one-dimensional market potential

• No explicit consideration of marketing mix elements

• Each consumer can only purchase one product unit

• Only two distinct buyer / market segments

• Parameters can be differently interpreted which might lead to implausible marketing recommendations

• Varying market potential as a function of product price, reduction in uncertainty in product

  performance, growth in population, and increases in retail outlets.

• Incorporating of marketing variables

  Coefficient of innovation (a1) as a function of advertising a1 (t) = a0 + b ln ADV(t).

• Incorporating repeat purchases

• Multi-stage diffusion process
  Awareness -> Interest -> Adoption -> Word of mouth

• Incorporating Network Structure