DIFFUSION OF INNOVATION

CONSUMER BEHAVIOR

Drivers of Innovation

1. Technology advances

2. Changing customer needs

3. Increased world-wide competition

4. Shortening of product life cycles

(Cooper 2001)

Innovation - definitions

An innovation is …

… an idea, practice or object that is perceived as new by an individual or other unit of adoption (Rogers 2003)

… new if it has been on the market for five years or less, and includes extensions and significant improvements (Cooper 2001)

… interchangeably used with the term “new product”

What is a new product?

Newness can be defined in two senses:

New to the company

Firm has never made or sold this type of product before, but other

firms might have

New to the market

The product is the first of its kind on the market

(Cooper 2001)

All new products are new, but some are newer than others

26 %

High

Low

Low High

New to the Market

Newto theCompany

New to theworld products

New productlines

26 %

20 % 10 %

7 %11 %

Revisions / improvements to existing products

Additions toexisting product

line

RepositioningsCost reductions

Innovativeness

Radical vs Incremental innovations

(Chandy and Tellis 1998)

Customer need fulfillment per dollar

Low High

Newness of technology

Low

High

Markets

Tech

nolo

gy

Incremental innovation

Radical innovation

Market breakthrough

Technological breakthrough

‘New-to-the-World Product’

Sony AIBOLaunched in 1999

Success or Failure?Launch price $2500: prevented these robots from going mainstream and conquering the world!

Production stopped in 2006!

‘New-to-the-World Product’

Honda AsimoAdvanced Step in Innovative MObility

Success or Failure?In October 2010: 10th anniversary!

‘New Product Line’Founded in April 2004 by Stelios Haji-Ioannou

Sold to Hellenic Seaways in August 2009

‘Line Extension’

Lipton Green

Most firms feature a mixed portfolio of new products:

Line extensions and product improvements are common to almost all firms

However, many firms stay clear of the most innovative categories:

what % of firms do not develop new-to-the-world products?

and, another 25% develop no new product lines.

Higher technology industries launching more innovative products

50%

Golden New Product Failure Rules

These condensed decision rules may seem intuitively right, but they are not:

• The faster, the better!• Position a new product as a successor of …!• Change your positioning frequently!• A low price is key!• A good new product sells itself!• Aim for the mass-market to achieve success!

Risk Minimization!

High failure rates and high costs make NPD risky, but

NPD can be managed so that:

the risks are minimized, and

the profit maximized!

16

How many ideas needed for one successful launch?

(www.mediamanagementcenter.org)

17

Investment risk over time

(www.mediamanagementcenter.org)

18

Market Testing: When and How?

Adopter categories based on innovativeness

(Rogers, 1995)

Innovativeness is the degree to which and individual is relatively earlier in adopting new ideas than other members of a social system (Rogers, 1995)

Crossing the chasm model

(Geoffrey Moore 1991)

Visionaries

Look for:The newest thingPerformance featuresIt’s coolness

Pragmatists

Look for product that:Works pretty wellEase of useIs not so expensive

Moore: the firm should consider developing a value proposition that will work for pragmatists, anddevelop a launch strategy designed to reach pragmatists.

Tailoring marketing plan to intended adopters

(Schilling 2011)

Innovators, early adopters

• Technical content

• Leading-edge nature of innovation

• Channels that enable high content and selective reach

Early majority

Communicate:•Product’s completeness•Ease of use•Consistency with life•No detailed technical info

• Channels with high reach and high credibility

Late majority, laggards

Communicate:•Reliability•Simplicity•Cost-effectiveness

• Channels similar as early majority

Trying to convince the mass of a new idea is useless

Convince innovators and early adopters first!

But, who will be the innovators and early adopters?

Innovators and Early Adopters

First iPhone 5s buyer of the world: Jimmy Gunawan

Can we identify these innovators and early adopters in advance so as to focus our

early marketing on them?

Van Everdingen - Marketing of Innovations 2011

Profile Early Adopters of iPhone

http://www.trendsspotting.com/blog/wp-content/uploads/2007/06/iphone.PNG

Van Everdingen - Marketing of Innovations 2011

Adopter category Characteristics

Adopter categories

Venturesome, financial resources, ability to understand complex knowledge, ability to cope with high uncertainty

Opinion leaders, other adopters ask them for advice, decrease uncertainty, serve as role model

Adopt just before the average member, deliberate, important link in diffusion process, many informal social contacts

Skeptical towards innovation, scarce resources, lower SES

Traditional, limited resources, need certainty, tend to be suspicious Neighbors and friends are main info sources

Innovators

Early majority

Early adopters

Late majority

Laggards

(Rogers, 1995)