Diffusion of Innovation

• Diffusion of Innovations is a theory of how, why, and at what rate new ideas and technology spread through cultures. The concept was first studied by the French sociologist Gabriel Tarde (1890) and by German and Austrian anthropologists such as Friedrich Ratzel or Leo Frobenius .

Why does this happen?

Macromarketing 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• Succesful 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

• A successful new product can be the beginning of a whole new company

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

Diffusion of innovation

• A process 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

• Innovation

• Communication

• Time

• 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 – new products that are most likely to succeed are those that appeal to strongly felt needs

• Compatibility – degree to which the product is consistent with existing values and past experience of the adopters

• Complexity – degree to which an innovation is perceived as difficult to understand and use

• Trialability – the ability to make trials easy for new products without economic risk to the consumer

• Observability – reflects the degree to which results from using a new product are visible to friends and neighbours

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

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.

Characteristics that encourage rejection

• Value barrier

• Usage barrier

• Risk barrier

Speed of diffusion

• Competitive intensity

• Reputation of the supplier

• Standardised technology

• Vertical coordination

• Resource commitments

Communication of new products

• Mass media• Homophily – degree to which pairs of individuals

who interact are similar in beliefs, education and social status

• Heterophily – inconsistent with own beliefs and views

The Adoption – Decision ProcessEverett Rogers

Confirmation

Knowledge

Persuasion

Decision

Implementation

Adopter classes

• Innovators - 2.5%

• Early adopters – 13.5%

• Early majority – 34%

• Late majority – 34%

• Laggards – 16%

Innovators

• Innovators are the first individuals to adopt an innovation. Innovators are willing to take risks, youngest in age, have the highest social class, have great financial lucidity, very social and have closest contact to scientific sources and interaction with other innovators .

Early Adopters

• This is second fastest category of individuals who adopt an innovation. These individuals have the highest degree of opinion leadership among the other adopter categories. Early adopters are typically younger in age, have a higher social status, have more financial lucidity, advanced education, and are more socially forward than late adopters

Early Majority

• Individuals in this category adopt an innovation after a varying degree of time. This time of adoption is significantly longer than the innovators and early adopters. Early Majority tend to be slower in the adoption process, have above average social status, contact with early adopters, and show some opinion leadership.

Late Majority

• Individuals in this category will adopt an innovation after the average member of the society. These individuals approach an innovation with a high degree of skepticism and after the majority of society has adopted the innovation. Late Majority are typically skeptical about an innovation, have below average social status, very little financial lucidity, in contact with others in late majority and early majority, very little opinion leadership.

Laggards

Individuals in this category are the last to adopt an innovation. Unlike some of the previous categories, individuals in this category show little to no opinion leadership. These individuals typically have an aversion to change-agents and tend to be advanced in age. Laggards typically tend to be focused on “traditions”, have lowest social status, lowest financial fluidity, oldest of all other adopters, in contact with only family and close friends, very little to no opinion leadership .

Innovativeness

This is the degree to which an individual adopts an innovation relatively earlier than others

• Based on time of adoption

• Based on number of new product adoption

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 the social system

• Cosmopoliteness

• Change agent contact

• Mass media exposure

• Exposure to interpersonal 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.

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