DIFFUSION OF INNOVATION

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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?

Macro marketing 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
Successful 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
of a whole new company

A successful new product can be the beginning

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
An invention is an idea, a sketch or model for a new or improved device, product, process or system. Such inventions may often be patented but they do not necessarily lead to technical innovations. In fact the majority do not. An innovation in the economic sense is accomplished only with the first commercial transaction involving the new product, process system or device. Freeman & Soete, p. 6.

WHAT IS AN INNOVATION?
Innovation: any product that consumers perceive to be new
New manufacturing technique New product variation New way to deliver product New way to package product

Diffusion of innovation
Successful innovations spread through the population at various rates

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
Diffusion is a process where: 1) an innovation 2) is communicated through

certain channels 3) over time 4) among members of a 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 over existing technologies - can be perceived,

may be measured in economic terms, social prestige, convenience and satisfaction. Benefits of adopting the new technology compared to the costs, Implication: Marketers must understand customer perceptions of benefits vs. costs
Compatibility with existing values, past experiences, needs of

potential adopters (and their social system)

Implication: Marketers must educate customers if compatibility is low Complexity - degree to which an innovation is perceived as difficult to

understand and use.

Implication: Try to simplify use; easier to learn; offer training and

education

Likelihood of innovation success

Trialability degree to which an innovation may

be experimented with on a limited basis. A trialable innovation represented less uncertainty to a potential adopter. Implication: Design products as independent modules or offer on trial basis
Observability Degree to which the results of an

innovation are visible to others. Implication: If benefits are elusive to both the users and their friends, adoption will be slow

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 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

Communication Channel
The means by which messages get from

one individual to another.

The nature of the information-exchange

relation determines the conditions under which a source will/will not transmit the innovation to the receiver and the effect of the transfer.

Communication of new products

Mass-media most efficient way to

create awareness knowledge of an innovation

Interpersonal

channels more effective in persuading in individual to accept a new idea.

Communication of new products

Individuals

do not evaluate innovations on the basis of a scientific assessment of its consequences rather depend on subjective assessment conveyed to them from peers. Thus diffusion is a social process.

Communication of new products

The

closer (more homophilious) two individuals are, the more frequently and more successful the transfer of ideas between them.

Communication of new products

Problem - in the diffusion of innovation:

is participants are usually quite heterophilious thus ineffective communication likely to occur.
Yet two exactly similar individuals

cannot, by definition pass on information. Therefore diffusion demands some heterophiliousness.

Communication of new products

Time - third element in the diffusion

process. Involved in: the innovation-decision process the innovativeness of an individual an innovations rate of adoption in a system

Communication of new products

THE

INNOVATION-DECISION PROCESS - the process through which an individual passes from first knowledge of an innovation to forming an attitude toward the innovation, to a decision to adopt or reject it.

Innovation Decision Process

Five stages in the innovation-decision

process:

(1) knowledge, (2) persuasion, (3) decision, (4) implementation, and (5) confirmation.

The Adoption Decision Process

Everett Rogers

Knowledge

Persuasion Decision

Implementation

Confirmation

The Adoption Decision Process

Innovation Decision Process

Knowledge occurs when an individual (or other decision-making unit) learns of the innovations

existence and gains some understanding of how it functions.

Persuasion occurs when an individual (or other decision-making unit) forms a favourable or unfavourable attitude toward the innovation.
Decision occurs when an individual (or other decision-making unit) engages in activities that lead

to a choice to adopt or reject the innovation.

Innovation Decision Process

Implementation occurs when an individual (or

other decision-making unit) puts an innovation into use. Re-invention is especially likely to occur at the implementation stage.
Confirmation occurs when an individual (or other decision-making unit) seeks reinforcement of an innovation-decision that has already been made, but the individual may reverse this previous decision if exposed to conflicting innovation.

Innovation Decision Process

Ultimately,

the innovationdecision process leads to either adoption or to rejection.

Adopter classes
Innovators - 2.5%
Early adopters 13.5% Early majority 34% Late majority 34% Laggards 16%

Adopter classes

Innovator
2.5% of population Venturesome Very eager to try new ideas Acceptable if risk is daring More cosmopolite social relationships Communicates with other innovators

Early Adoptors
13.5% of population Respected More integrated into the local social system The persons to check with before adopting a new idea Category contains greatest number of opinion leaders Are role models

Early Majority

34% of population Deliberate Adopt new ideas just prior to the average time Seldom hold leadership positions Deliberate for some time before adopting

Late Majority
34% of population Skeptical Adopt new ideas just after the average time Adopting may be both an economic necessity and a reaction to peer pressures Innovations approached cautiously

Laggards
16% of population Traditional The last people to adopt an innovation Most localite in outlook Oriented to the past Suspicious of the new

Rate of Adoption
Rate of adoption - the relative speed with

which an innovation is members of a social system.

adopted

by

When the number of individuals adopting a

new idea is plotted on a cumulative frequency basis over time, the resulting distribution is an S-shaped curve.

Rate of Adoption

Rate of Adoption
Most innovations have an S-shaped rate of

adoption.
But there is variation in the slope of the S from

innovation to innovation;
some new ideas diffuse relatively rapidly and the

S-curve is quite steep.

Other innovations have a slower rate of adoption,

and the S-curve is more gradual, with a slope that is relatively lazy.

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 Exposure to interpersonal

the social system Cosmopoliteness Change agent contact Mass media exposure

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.

DIFFUSION PROCESS AND MARKETING STRATEGY

Identify diffusion inhibitors and find ways to compensate for these Identify innovators and early adopters and cater to them Move consumers from awareness to adoption Make effective use of word-of-mouth communications