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DIFFUSION OF INNOVATION
I-phone
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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.
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Why does this happen?
Macro marketing issues
Valuable resources are wasted which mighthave been deployed towards more
productive uses
Products that might have helped people dothings more productively or attain higher
levels in their quality of life, fail to be used Successful products are those that become
culturally anchored.
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Micromarketing issues
Successful new product development is animportant element in achieving long termcompetitive superiority and profitability,especially in low growth markets
New product development plays an importantrole in market leadership and profitability.Market leaders normally have three timeshigher returns than firms with lower marketshares
A successful new product can be the beginningof a whole new company
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THE VALUE CHAIN
Contemporary firms are being attacked bycompetitively on every dimension and fromevery direction.
The only way to survive this onslaught is tocreate a valuechain to serve the customer,which will serve to differentiate the
successful firm from its competitors andwill provide competitive superiority on thecritical attributes of importance to theconsumer
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WHAT IS AN INNOVATION?
It is any idea orproduct perceivedby the potentialadopter to be new.New products areideas, behaviour or
things that arequalitativelydifferent fromexisting forms
Aninvention 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 notnecessarily lead to technical
innovations. In fact the majority
do not. An innovation in the
economic sense is accomplished
only with the first commercialtransaction involving the new
product, process system or
device. Freeman &
Soete, p. 6.
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WHAT IS AN INNOVATION?
Innovation: any product that consumersperceive to be new
New manufacturing technique
New product variationNew way to deliver product
New way to package product
Diffusion of innovationSuccessful innovations spread through thepopulation at various rates
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Diffusion of innovation
A process by through which a newproduct moves from initial
introduction to regular purchase and
use A process by which an innovation
(idea) is communicated through
certain channels over time among themembers of a social system Everett
Rogers
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Diffusion variables
Diffusion is a process where:
1) an innovation
2) is communicated throughcertain channels
3) over time 4) among members of a social
system
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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
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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
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Likelihood of innovation success
Relative Advantage over existing technologies - can be perceived,
may be measured in economic terms, social prestige, convenienceand satisfaction.
Benefits of adopting the new technology compared to the costs,
Implication: Marketers must understand customer perceptions ofbenefits vs. costs
Compatibility with existing values, past experiences, needs of
potential adopters (and their social system)
Implication: Marketers musteducate
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
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Likelihood of innovation success
Trialability degree to which an innovation maybe 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
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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
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Characteristics that encourage
rejection
Value barrier
Usage barrier Risk barrier
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Speed of diffusion
Competitive intensity
Reputation of the supplier
Standardised technology
Resource commitments
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Communication of new products
Mass media
WOM
Homophily degree to which pairs ofindividuals who interact are similar in
beliefs, education and social status
Heterophily inconsistent with ownbeliefs and views
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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.
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Communication of new products
Mass-media most efficient way to
create awareness knowledge of an
innovation
Interpersonal channels more
effective inpersuading in individual toaccept a new idea.
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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.
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Communication of new products
The closer (more
homophilious) two individualsare, the more frequently and
more successful the transfer of
ideas between them.
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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.
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Communication of new products
Time - third element in the diffusion
process. Involved in:
the innovation-decision process
the innovativeness of an individual
aninnovations
rate of adoption in asystem
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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.
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Innovation Decision Process
Five stages in the innovation-decision
process:
(1) knowledge,
(2) persuasion,
(3) decision, (4) implementation, and
(5) confirmation.
Th Ad ti D i i P
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The Adoption Decision ProcessEverett Rogers
Confirmation
Knowledge
Persuasion
Decision
Implementation
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The Adoption Decision Process
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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.
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Innovation Decision Process
Implementation occurs when an individual (orother 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.
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Innovation Decision Process
Ultimately, the innovation-
decision process leads to eitheradoption or to rejection.
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Adopter classes
Innovators - 2.5%
Early adopters 13.5%
Early majority
34% Late majority 34%
Laggards 16%
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Adopter classes
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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
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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
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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
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Late Majority
34% of population
Skeptical
Adopt new ideas just after the averagetime
Adopting may be both an economic
necessity and a reaction to peerpressures
Innovations approached cautiously
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Laggards
16% of population
Traditional
The last people to adopt an innovation Most localite in outlook
Oriented to the past
Suspicious of the new
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Rate of Adoption
Rate of adoption - the relative speed with
which an innovation is adopted by
members of a social system.
When the number of individuals adopting a
new idea is plotted on a cumulative
frequency basis over time, the resultingdistribution is an S-shaped curve.
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Rate of Adoption
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Rate of Adoption
Most innovations have an S-shaped rate ofadoption.
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.
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Parameters for innovativeness
Socio-economic variables
Personality and attitude
Communication variables
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Socio economic variables
Education
Literacy
Higher social status
Upward social mobility
Larger-sized units
Commercial orientation
Favourable attitude towards credit
Specialized operations
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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
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Communication variables
Social participation
Interconnectedness withthe social system
Cosmopoliteness Change agent contact
Mass media exposure
Exposure to interpersonalcommunication channels
Knowledge of innovations
Opinion leadership Belonging to highly
interconnected systems
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POLYMORPHISM
The degree to which innovatorsand early adopters for one
product are likely to be
innovators for other products.Consumers who are innovatorsfor one product are
monomorphic. Consumers whoare innovators for more than oneproduct are polymorphic.
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DIFFUSION PROCESS AND
MARKETING STRATEGY
Identify diffusion inhibitors and findways to compensate for these
Identify innovators and early adoptersand cater to themMove consumers from awareness to
adoptionMake effective use of word-of-mouthcommunications