©2009 Prentice Hall3-1

Chapter 3

Technology Adoption and Diffusion

Technology Strategy for Managers and Entrepreneurs

©2009 Prentice Hall3-2

1. Identify key factors of different groups of adopters2. Explain why proportion of the market adopting a new technology product

or service at a point in time is typically S-shaped3. Define and explain “crossing the chasm”4. Figure out how to cross the chasm5. Explain why forecasting demand is difficult, but important6. Define technology diffusion, describe the typical diffusion pattern, and

identify the factors that influence technology diffusion7. Understand how information and product diffusion models predict the rate

and functional form of diffusion8. Use the Bass model to estimate the rate of diffusion9. Use the Delphi method to estimate the rate of diffusion10. Explain why complementary technology has a profound effect on

technology diffusion11. Define and explain technology substitution12. Explain the importance of estimating how long it takes for technology

substitution to occur

Learning Objectives

©2009 Prentice Hall3-3

Distribution of Adopters

• Normal distribution is the most common pattern of adoption of new products and services

©2009 Prentice Hall3-4

The Normal Distribution of Adopters

©2009 Prentice Hall3-5

Groups of Adopters

Innovators: adopt new technology immediately

Early adopters: follow the innovators

Early majority: adopt new technology just before the average for the market

Late majority: adopt after other customers have adopted the technology successfully

Laggards: prefer to avoid adoption as long as possible

©2009 Prentice Hall3-6

S-Curves of Adoption

• The S-shaped pattern indicates that there is an acceleration point at which a market “takes off” by: Pointing out that different groups of customers adopt

new products at different points in time for different reasons

Providing information about the right promotional strategy

Indicating appropriate pricing strategy Providing estimated demand growth over time Providing information about the financial

attractiveness of a market at different points in time

©2009 Prentice Hall3-7

The Adoption S-Curve

©2009 Prentice Hall3-8

Crossing the Chasm

• The need to sell to the mass market to achieve an adequate return on investment

• For companies to segment the early majority of the market and focus on the portion of the majority that is underserved by existing products

©2009 Prentice Hall3-9

Crossing the Chasm

©2009 Prentice Hall3-10

Identifying the Take-off Stage

• If there is an accelerated rate change in demand

• When the customer base begins to shift away from the innovators and early adopters

©2009 Prentice Hall3-11

How to Cross the Chasm

• Need to show how it provides value to customers

• Need to develop a complete solution to customers’ problems

• Need to pursue a vertical marketing strategy rather than a horizontal marketing strategy

©2009 Prentice Hall3-12

Choosing the Customer

• Concentrate on a single vertical market Target the one that has the greatest need for

the new product by estimating the product’s value to different markets

Estimate the time it takes to payback the cost of the product

©2009 Prentice Hall3-13

Beachhead Strategy

• Segment the early majority of the market and focus on the portion of the majority that is underserved by existing products

©2009 Prentice Hall3-14

Demand Forecasts

1. Determine how much to produce

2. Projects future costs in businesses based on economies of scale

3. Determines the payback on your investment in product development

4. Makes pricing and advertising decisions

5. Determines the competitiveness of the market

©2009 Prentice Hall3-15

Forecasting Demand

• Can’t estimate future demand solely on the basis of the current market size

• Depends on the timing of customer adoption

• Depends on the accuracy of information about the factors that influence diffusion patterns

©2009 Prentice Hall3-16

Information Diffusion Models

• The functional form of diffusion is primarily a function of the distribution of innovators and imitators

• When there are few innovators and many imitators, diffusion follows an S-shaped pattern

©2009 Prentice Hall3-17

How Not To Do It

• The number representing a similar market should not be used as the estimated size of the target market: May be a substitute for more than one

existing product May be a complement for one or more

products

©2009 Prentice Hall3-18

The Bass Model

• A quantitative tool for forecasting the diffusion of new technology products that many companies use

• Based on the size of the market, the rate of adoption by innovators and imitators, and the proportion of adopters in the previous time period

• Can be modified to include a variety of factors that affect the diffusion of new technology products

• Most accurate at predicting the diffusion of consumer durables

©2009 Prentice Hall3-19

Bass Model Limitations

• Cannot use to estimate diffusion in the first year of a product’s life

• Accuracy of predictions depends on the accuracy of assessments of size of the potential market

• Assumes that the diffusion of a technology product depends only demand-side factors

• Accuracy is much lower when competing technologies are being introduced

• Further away in time from the initial adoption point the accuracy declines

©2009 Prentice Hall3-20

The Delphi Technique

• An important tool to use to identify potential technological trends that might impact the development of new products and services Experts are selected and asked anonymously for their

estimates of the likelihood of particular outcomes occurring

Participants return their estimates to a coordinator, who compiles them

Summary data outlining the mean and range of viewpoints is then returned to the respondents who are asked again for new estimates in light of the information presented by the other experts

©2009 Prentice Hall3-21

The Delphi Technique Major Weaknesses

1.Sensitive to the precision of the questions asked

2.Sensitive to variance in the expertise of the respondents

3.Validity of the technique is limited by the intervention of unexpected events that the experts do not incorporate into their analyses

©2009 Prentice Hall3-22

The Process for Using the Delphi Method

©2009 Prentice Hall3-23

• Look at product characteristics to explain their rate of diffusion

1. The greater the benefit and the lower its cost, the faster it will diffuse

2. The provision of information about a new product and the opportunity to test it enhance the rate of diffusion

3. Perceived risk of a new product lowers its rate of diffusion

4. The characteristics of adopters affect the rate of diffusion

5. Aspects of the environment affect the rate of diffusion

6. Social and political factors affect the diffusion of a new product

Product Diffusion Models

©2009 Prentice Hall3-24

The Importance of Complementary Technologies

• New products based on systemic technologies employ ways to make certain that complementary technologies will develop

©2009 Prentice Hall3-25

Substitution

• The achievement of the same objective by the replacement of one technology for another

• It influences the competition between incumbent firms and new entrants

• Implementation of a substitution strategy is difficult because substitution can be multi-level, face political opposition, be partial, and take a long or a short time

• Companies take risks by deliberately developing new products to substitute for old ones

©2009 Prentice Hall3-26

Time to 90 Percent Substitution