Changes in Product Attributes and Costs as Drivers of New Product Diffusion and Substitution

Abstract

Diffusion theory has typically focused on how communication, internal or external to a social system, leads to adoptions and diffusion of an innovation. We develop a diffusion and substitution model based on a somewhat different perspective. In some cases, progressive improvements in product attributes and/or continual cost reduction seem to be a key driver of the diffusion process. For example, after introduction of the 5.25‐inch disk drive, its capacity continually increased, and accordingly, so did customer willingness‐to‐pay. Our model is based on a linear reservation price framework, in which a product is described by its depth (defined as the difference between a product̂s maximum reservation price and its production cost), and its breadth (related to the slope of its reservation price curve), indicating how broadly it appeals across various customer segments. Because of changes in product depths and breadths over time, customers who previously preferred the old product may later prefer the new product, thus creating the diffusion process. While the Bass model describes diffusion as a function of the coefficients of innovation and imitation, in our model, it is described by the coefficients of depth and breadth (the rates of change in relative depth and breadth), along with an S‐coefficient that we associate with the technology S‐curve. We fit our model to data from the disk‐drive and the microprocessor industries.

Biometric technology in retailing: Will consumers accept fingerprint authentication?

“…It is assumed that individuals influence each other's social values when they have discussions (Deffuant et al, 2005). Schmidt and Druehl, (2005) suggest a somewhat different perspective. They believe that adoption may progress due to changes in the product attributes, rather than because of communication attributes.…”

Applying the Disruptive Innovation Framework to the Silver Market

“…One insight from the encroachment model Schmidt and Druehl 2008) is that the first customer to buy when diffusion occurs via high-end encroachment (sustaining innovations, including radical innovations; as discussed above, those customers are innovators in Rogers' (2003) sense) can be the last to buy when diffusion occurs via low-end encroachment (disruptive innovations). That is, even in the same marketplace, the very same customer can be either a laggard or an innovator, depending on whether the new product diffuses via low-end or high-end encroachment (Schmidt and Druehl 2005). This can again be seen as another proof that disruptive innovations are a relative phenomenon.…”

“…This means that low-end encroachment is possible, even if the new product is initially high priced, if the new product opens up a new market segment that is in essence detached from the existing market (Schmidt and Druehl 2008: 359). Note, however, that high or low price is relative as it depends on the affordability and willingness to pay, i.e., the reservation price, of the customer (see also Schmidt and Druehl 2005 for a discussion of the impact of reservation prices in new product diffusion and substitution).…”

An Agent Model for the High-End Gamers Market

“…They do not consider competition nor do they allow for an adopter to leapfrog a generation of products. More recently, researchers have incorporated product or market variables into the Norton-Bass model to evaluate their impact on the development of successive generations of products, for example, [21,7,42,9] leading to extremely complex models and complicated data fitting procedures.…”