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Unit 11
Unit 11
Diffusion of Innovation
Structure: 11.1 Introduction Objectives 11.2 Types of Innovation Breadth of innovation 11.3 Time Factor in Innovation Process Time of adoption 11.4 Diffusion Process Rate of innovation adoption or diffusion Caselet: Apples iPod exemplary diffusion of innovation 11.5 Factors Affecting the Diffusion of Innovation 11.6 The Adoption Process Barriers to adoption of innovation 11.7 Culture, Communication and Diffusion Cultural context and diffusion of innovation Role of communication 11.8 Summary 11.9 Glossary 11.10 Terminal Questions 11.11 Answers 11.12 Case Study
11.1 Introduction
After explaining all the determinants of consumer behaviour in the previous unit, this unit explains innovations and behaviour of consumers in relation to such innovations. Consumers evaluate all new products based on their perceptions, personality, attitude, motivation, cultural environment and social influences. The ability to develop successful new products is critical to a company's sales, future growth and long-term survival. Gabriella Stern reported that 49 percent of the total revenue of some of the world's leading companies came from new products. There is no universally accepted definition of "product innovation" or "new product." Everett M Rogers (Diffusion of Innovation, 4th ed. Free Press,
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1995) observes that some researchers have favoured a consumer-oriented approach in defining an innovation. According to Hubert Gatignon and Thomas S Robertson, an innovation is a product, service, attribute, or idea that consumers within a market segment perceive as new and has an effect on existing consumption patterns. Diffusion of innovation refers to how a new innovation an idea or technology spreads or is adopted by an entire market (technology) or society (ideologies) in stages (diffusing). Objectives: After studying this unit, you should be able to: Explain the types of innovations Analyse the diffusion of innovation process and factors affecting diffusion Identify the stages in consumer adoption process, and barriers in adoption Explain the role of time, culture and communication in diffusion of innovation
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way we acquire, use and dispose of music and utilise other technologies such as CD and DVD writers. Discontinuous innovation This represents a product so new that consumers have never known anything like it before and impels consumers to adopt new consumption behaviour practices. Products such as electric bulbs, aeroplanes, computers, television, photocopying machines, fax machines, inkjet and laser printers, heart transplant and MRI scanning, medical self-test kits, etc. were all at the time of their introduction discontinuous innovations
Innovations can also be categorised by the benefits that products or services offer. Some services, attributes or ideas are functional innovation because they provide functional performance benefits to consumers over existing alternatives. For example, computer notebooks offer portability over stationary computers. Functional innovations often take advantage of new technology. For example, technological advances have offered consumers the advantage of downloading images from the Internet and conducting videoconferencing via their cellular phones. Figure 11.1 depicts the innovation continuum.
11.2.1 Breadth of innovation Breadth of innovation describes new and different uses or applications of a product. For example, baking soda has been used as a baking ingredient, a tooth polisher, a carpet deodoriser and a refrigerator deodoriser. Teflon is a product that was originally designed to prevent things from sticking to
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cookware. Subsequently, its thin tapes have been used in plumbing to prevent leakage from joints. Teflon is also used in men's suits. Nylon has been put to several different uses such as producing clothing, diving suits, balloons, parachutes, ropes, fishing lines, masts and many others. Activity 1: Look up advertisements and prepare a list of five products that you consider as innovations. What category of innovation does each product represent? Give reasons. Hint: You may consider products that are completely new, or modified versions of existing products or invented for the first time. Self Assessment Questions 1. Mobile phones come in the category of _____________innovations. 2. iPod is an example of ______________ innovation.
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Early adopters They represent, on an average, the next 13.5 percent who adopt the new product. They admire a technologically new product not so much for its features as for its abilities to create a revolutionary breakthrough in the way things are normally accomplished. Though they are not among the earliest individuals to adopt the product, yet they adopt the product in the early stage of its life cycle. They check before adopting a new idea. They are respectable as they are role models. This category contains the greatest number of opinion leaders as they are more integrated into the local social system. They are successful, well educated and somewhat younger than their peers. They tend to be more reliant on group norms and values than innovators and are also more oriented to the local community rather than having a cosmopolitan look. They are willing to take a calculated risk on an innovation but are concerned with failure. Early adopters also use commercial, professional and interpersonal information sources. Since they tend to be opinion leaders, they are likely to transmit word-ofmouth influence and, due to this reason, they are probably the most important group in determining the success or otherwise of the new product. Early majority They constitute the next 34% of the people to adopt an innovation and adopt new ideas just prior or the average time. They deliberate for sometime collecting information and evaluating other brands, before adopting. They adopt innovations earlier than most of their social group but only after the innovation is considered successful. They look for innovations that offer improvements of an existing technology. incremental, predictable
They tend to be price sensitive and like to see competitors enter the market.
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They are socially active, somewhat older, less educated and less socially mobile than early adopters and seldom hold leadership positions. They rely heavily on interpersonal sources of information and are an important link in the process of diffusing new ideas because of their position between earlier and later adopters.
Late majority They represent next 34 percent to adopt an innovation after the early majority. They are sceptical about innovations and adopt new ideas just after the average time, approaching the innovations cautiously. They are conservative, wary of progress, rely on tradition, and adopting innovations may be both an economic necessity and a reaction to peer pressures. They tend to be older, with below average income and education and have lower social status and mobility than those who adopt earlier. In many developing countries, consumers who have just started learning to use the Internet are considered late majorities in this product category. Laggards They represent the last 16 percent of adopters. They are traditional, most localite in outlook, dogmatic and oriented to the past. Like innovators they are least inclined to rely on the groups norms. By the time they adopt an innovation it is old and has been superseded by something else. They tend to be suspicious of new products and alienated from a technologically progressing society and adopt innovations with reluctance. In the personal computer market consumers who can afford and have yet to buy a PC are likely to be regarded as laggards. Self Assessment Questions 3. Karan buys a cellphone on the day of its launch. He is a/an ________. 4. _______ are most likely to be opinion leaders and influence others. 5. Late majority adopt a product when it is in its maturity stage but more towards decline. (True/False)
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6. Innovators are least inclined to rely on group norms and are tradition bound. (True/False)
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11.4.1 Rate of innovation adoption or diffusion The rate of adoption refers to how long a new product takes to be accepted by those consumers who will ultimately adopt it. Marketers aim to gain wide acceptance of new products as soon as possible in order to penetrate the market fast and attain market leadership before competition sets in. A penetration strategy usually involves low introductory price to dissuade competitors from entering the market. Sometimes marketers avoid a rapid rate of adoption for a new product. For instance marketers who intend to recover their development costs rapidly adopt a skimming strategy which entails making the product available at a high price initially and then slowly lowering the prices stepwise. Rate of adoption also refers to the extent of adoption of an innovation over time among groups. There are four major reasons that explain why innovations are adopted more quickly: With the increase in household disposable income, new products are likely to be more affordable. Rapid technological advances require quicker adoption cycles. As technology is becoming more standardised, it reduces consumers risk perception associated with the adoption of a new product. The rate of diffusion of Pentium processor based PC was fairly quick because of the acceptance of Disk Operating System (DOS) as the industry-wide standard. Information regarding innovation is communicated rapidly and is accessible to the consumers conveniently. Obviously, the more quickly consumers become aware and gain knowledge about a new product through mass media and Internet, the faster is communication to various groups.
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Caselet: Apples iPod exemplary diffusion of innovation Apple's iPod is a classic instance of Diffusion of Innovation Theory in action in the area of technology. Apples introduction of iPod can be argued to be an extension of the diffusion of portable music. The adoption of portable music first came through the WalkMan, then DiscMan as the CD became new technological medium of music, and then came the trend of getting music from the internet as MP3s. Therefore, Apple benefited from an interest in portable music devices which, was in its late majority stage. This denoted that many people were acquainted and comfortable with the use of portable music devices. However, innovators and early adopters were seeking new devices that could be used for acquiring music from the internet; this process was in its early adopter stages. The iPod constituted the ideal new technology to exploit both the above processes that were operational. iPods ease of use and handy Internet interface of iTunes not only lured innovators, but were also contributing to innovators explaining and demonstrating to early adopters, and to others down the line. Apple has benefitted immensely from the Innovation Diffusion Theory and has exploited it to attract consumers from one innovation to another, towards greater familiarity and acceptance of the entire Apple products range. The trail of innovation and the mass appeal that accompanies this trend is luring consumers in stages from buying one Apple product to acquiring its whole range; from iPod Nano to MacBook. What started with the introduction of a new portable music device is now being used by Apple to gain a larger market share across its entire product range. Impact of iPod on consumer behaviour Apple iPod also serves as an outstanding example of an innovation diffused and adopted speedily the world over. Apple has successfully used the iPod to increase its revenue, enhance corporate image and research and develop new innovations. Apple has widened the iPod market from including a group of early adopters to the early majority without weakening the products cool factor. It can be deduced from secondary research that Apple iPod sales can be linked to rate of adoption. Innovators are people who are fascinated by new ideas and this takes them from a local circle into a cosmopolitan circle.
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Sales were low and slow initially because the iPod lured innovators to acquire and try the products before any other category of consumers trusted the iPod with their disposable income. The early adopters category consists of the highest intensity of opinion leadership and owing to this groups social influence sales of iPods elevated in 2006, 2007 and 2008. Apple had apparently benefited from its previous product launches. By monitoring the behaviour of innovators and early adopters who grasped the technology and were clear about what they wanted from a digital music player, Apple was able to lucidly identify consumer need for the first time as the ability to easily purchase, store, access and enjoy music. By enclosing the technology in an undeniable value proposition, and offering customers an incredible usage experience, Apple set the imaginations of the early and late majorities ablaze and sales exploded. Figure 11.2 depicts that the iPod sales may be facing a decline as its the last category in the social system called laggards who may be buying iPods now. Sales may be diminishing because millions of people own iPods and it may now need to match iPhones features.
Figure 11.2: Apple iPod Worldwide Sales (Source: Apple Inc, financial statements (via Wikipedia))
Self Assessment Questions 7. ________ are identified with the introductory phase of product life cycle.
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8. Marketers begin to use price appeals and sales promotions in the ___________ stage.
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adaptation, diffusion would be slow. The microwave oven was introduced about three decades ago in India, but since it was not compatible with Indian family values, its diffusion has been rather slow. Internet banking or shopping is not consistent with established habits of Indian consumers, resulting in very slow diffusion of this innovation. Relative advantage If consumers perceive an innovation as better or superior in meeting their relevant need compared to existing substitutes, the diffusion will be more rapid. While considering the relative product advantage, consumers consider both the cost and the performance. To be successful, an innovation must have either the performance or the cost advantage over existing alternatives. For example, newer versions of computer processors have performance advantage over earlier ones and hence their diffusion has been rapid. Complexity If an innovation is difficult to understand and also difficult to use, its diffusion would be slower. Product simplicity and ease of use are important factors in speeding up the process of diffusion. Computer manufacturers, such as IBM and Apple, have tried to overcome the initial complexity of using personal computers by communicating with consumers that their computers are user-friendly. Observability It refers to the ease with which consumers can observe the positive effects of adopting an innovation. The diffusion will be more rapid if the positive effects are easily observable. Products, such as cellular phones, fashion items and autos etc., are highly visible. Trialability It is the degree to which a product can be tried before adoption. This is much less a problem with low-cost or low-risk items such as cold remedies, but cellular phones, fax machines and computers etc., can be demonstrated in actual use and tried on a limited scale. If consumers can purchase a product in small quantity, then trial is relatively easy. Perceived risk The more the risk associated with trying a new product, slower the diffusion process. The risk in adopting an innovation can be financial, physical, performance, or social. Initially, adopters of personal computers perceived economic and performance risks which have been largely overcome by decreasing prices and improved software. In case of fashion items, consumers feel social risk until
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opinion leaders in consumers peer group adopt them. The most effective way to reduce perceived risks in adopting an innovation is through trial. Free samples are an effective tool in case of continuous innovations of low-cost items such as detergents, or toothpaste etc. Self Assessment Questions 9. ___________ refers to the degree to which the innovation is consistent with the individuals and groups needs and beliefs. 10. If consumers perceive an innovation as better in meeting their relevant need compared to existing ones, the diffusion will be more rapid. This relates to the ___________ factor.
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As a consequence of using the product, the consumer makes post purchase evaluation. In this process of adoption, product trial is more important than in most other decisions because the perceived risks are much higher with the use of a new product. Certain types of products or services are difficult or even impossible, to try on a sufficient basis such as electric cars or laser eye surgery. Figure 11.4 depicts the stages in the adoption process.
The post purchase evaluation has important implications because of the expenses involved or the complexity of many products and the rapid changes in technology. For example, Apple Computers introduced their Cube, which was believed to be something unique in computer design. However, the company discontinued the model because of consumers rejection of the product. When Apple introduced their range of iMacs, another breakthrough in computer design, consumer response was overwhelming. 11.6.1 Barriers to adoption of innovation Most of the above mentioned factors could cause consumers to reject an innovation. However, S Ram and Jagdish N Sheth have mentioned three of the above mentioned as major factors that inhibit adoption of innovation: Value barrier refers to a products relative disadvantage compared with the substitute products. When cellular phones were introduced, they were
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too expensive for most general consumers relative to the value they could get from commonly used telephones. More than a decade ago, BMW introduced a 650cc motorcycle in India. The price was over Rs.5,00,000 and consumers perceived the cost as too high relative to value. Usage barrier results when an innovation is incompatible with consumers long established practices. For example, the dish washer could never take off in India as vessels in India often need to be scrubbed due to the cooking practices for which the dish washer was found unsuitable. Risk barrier is concerned with physical, economic, functional or social risk for adopting an innovation. If the intensity of perceived risk is high, consumers are likely to wait and watch till such time that they are reasonably assured that there are no unusual risks associated with product adoption. Activity 2: Make a report on the diffusion and adoption process of Apple iPhone in India. Hint: Look at articles in magazine or online sources for information. Self-Assessment Questions 11. Online shopping and teleshopping do save time but still many don't like to shop on web or on phone as it is not consistent with Indian shopping habits. This is the _____________ barrier. 12. ____________ stage comes just before the adoption stage in the adoption process.
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depends largely on contextual cues. What is left unsaid is often as important (if not more) as what is said. Contextual cues could include nature of relationships between the sender and receiver of the message (in terms of gender, age, balance of power etc), the time and situation of communication e. Such cultures also attach value to group conformity rather than to individualism and to societal norms and rituals. Confucian cultures (China, Korea and Japan) and Latin America are some typical examples of high context cultures. A low context culture is a culture that communicates chiefly through explicit messages that are expressed in specific terms to be understood. In such a culture verbal aspects and clarity are very important. In other words, a low context culture lays most emphasis on the written and spoken word. What is meant is what is said. The context within which messages are communicated is very narrow. Australia, Scandinavia and Germany are some examples of low context cultures.
Cultural homogeneity Cultures differ greatly in terms of the degree of their homogeneity. A homophilous culture is one where people share the same beliefs, speak the same language and practice the same religion, for example Korea, Japan and Scandinavian countries. A heterophilous culture is one that has an enormous diversity, with several languages spoken and religions practiced with varied belief systems. India is a good example of a heterophilous culture. Most countries can be considered heterophilous with a moderate amount of differentiation.
Differences in cultural homogeneity and cultural contexts cause differences in adoption rates of innovation. There is strong evidence that the rate of innovation diffusion is rapid in high context and homophilous cultures. 11.7.2 Role of communication Communication is a key element that influences diffusion across markets. Consumers rely on marketer controlled mass media advertising for information about new product introductions. Advertising campaigns are designed to create awareness among potential consumers and communicate relevant information about features and benefits. H David
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Strutton and James R Lumpkin studied the adoption of self-diagnostic medical devices among elderly consumers and reported that early adopters were more dependent on mass media for information. Subsequently, they show greater reliance on friends and family members to help them evaluate new products and word-of-mouth influence increases in importance as early adopters progress from awareness to knowledge, evaluation, trial and adoption. In the case of later adopters, word-of-mouth tends to be the most important influence throughout the adoption process. They learn about innovations from friends and neighbours rather than the mass media. To create awareness among early adopters, the role of mass media advertising providing informational content is more important in the process of diffusion. For later adopters, advertisers can try to encourage favourable word-ofmouth by using influential spokespersons. Word-of-mouth influence across groups For diffusion to occur across groups, positive word-of-mouth must first start within groups. However, favourable word-of-mouth within just groups is not sufficient for diffusion to occur but requires the spread of information across different groups. This does happen because consumers spread information by interacting with individuals outside their own groups. A study by Jacqueline Johnson Brown and Peter H Reingen found that most word-of-mouth occurred in homophilous groups (between friends and relatives), while among heterophilous groups, word-of-mouth occurred in only 18 percent of communications among individuals. Activity 3: Discuss any two cases where a new product failed to take off because of cultural factors. Hint: Consider products that were successful in some countries while failures in others. Self Assessment Questions 13. Individuals who form a part of hetrophilous group tend to have similar choices and traits. (True/False) 14. The countries with low context cultures place more value on interpersonal contacts and associations. (True/False)
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11.8 Summary
Recapitulation of important concepts discussed in this unit: There is no universally accepted definition of product innovation or new product. Some researchers have favoured consumer-oriented approach, which says that an innovation is a product, service, attribute or idea that consumers within a market segment perceive as new and that has an effect on existing consumption patterns. The diffusion process refers to the manner in which innovations spread over time to other consumers through communications across a market. Adoption of an innovation requires an individual or a group of consumers to decide on buying a new product. Communication is a key element that influences diffusion across markets as early adopters rely on mass media for information about new products. Members of low-context cultures rely primarily on verbal and written communications in transmitting the meaning, place more value on individual initiative, and rely more on mass communication. High-context cultures rely primarily on non-verbal communication, with little difference in norms, values and socio-economic status among groups.
11.9 Glossary
Breadth of innovation It describes new and different uses that a product can accomplish. Compatibility The extent to which potential customers consider a new product to be consistent with their personal, needs, values and practices. Complexity The extent to which a new product is difficult to figure out and/or use by potential customers. Continuous innovation A new innovation that is an enhanced or modified version of an existing product rather than a completely new product. Diffusion process The process by which the adoption of an innovation is spread by communication to potential customers over a period of time. Skimming policy This entails making the product available at a high price initially and then slowly lower the prices stepwise.
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Trialability The degree to which a product is capable of being tried by potential customers in a restricted way before adoption (e.g. through samples, small packages, trial offers, etc.).
11.11 Answers
Self 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Assessment Questions Continuous Dynamically continuous Innovator Early adopter True False Innovators Maturity Compatibility Relative advantage Usage Trial False False
Terminal Questions 1. The different types of innovation are continuous, dynamically continuous, discontinuous and functional. For more details, refer section 11.2.
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2. The various stages in the adoption process are awareness, knowledge, evaluation, trial and adoption. The barriers are value, usage and risk barriers. For more details, refer section 11.5. 3. The rate of diffusion depends on how consumers perceive the product and its benefits. The rate of adoption refers to how long a new product takes to be accepted by those consumers who will ultimately adopt it. For more details, refer section 11.6. 4. People should know that an innovation has occurred and be aware about its relevance to them; the first stage of adoption process. For more details, refer section 11.7. 5. Communication and culture are important elements that influence diffusion across markets. Consumers rely on marketer controlled mass media advertising for information about new product introductions. For more details, refer section 11.7.
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New/obsolete It provides the newest benefits of scientific knowledge but is soon outdated. Computers, software, cameras, stereo systems and many other products are changing so rapidly that it is difficult and extremely expensive to be "up-to-date." Competence/incompetence It may increase feelings of intelligence and efficacy as well as feelings of ignorance and ineptitude. While one may experience pleasure in mastering many aspects of a technological product such as Excel, most also experience frustration at being unable to fully utilise the capabilities of many such technologies. Fulfils/creates desires It fulfils desires while developing or increasing awareness of other desires. The acquisition of a computer meets needs for faster and better word processing but generates desires for printers, zip drives and additional software.
Individuals who find such paradoxes stressful adopt four categories of strategies for avoiding or minimising them: Pre-acquisition avoidance strategies These include ignoring information about new technologies and refusing or delaying the acquisition of new technological products. Pre-acquisition confrontative strategies Using someone else's technology product temporarily; using buying heuristics such as buying a familiar, widely known brand or a basic, less sophisticated model; engaging in extensive pre-purchase learning and extended decisionmaking; and buying extended warranties or maintenance contracts are examples. Consumption avoidance strategies After acquiring the new technology (often as a gift or in response to peer pressure) one may still ignore, abandon, not repair or maintain it or use it only under restricted circumstances (VCR is used for showing rental movies but not for recording movies). Consumption confrontative strategies Accommodation (changing one's behaviours to meet the requirements of the new technology); partnering (developing an attachment to the technology) and mastering (thoroughly learning the technology) are common strategies.
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Consumers are aware of technology paradoxes and pursue a variety of strategies to cope with them. They are not passive recipients of technology and do not automatically assume that new technologies are net positive benefits. Discussion Question: What are the implications for the diffusion of technological innovations? Hint: Some people grab such innovations with both hands while others take time.
(Source: "Paradoxes of Technology: Consumer Cognisance, Emotions, and Coping Strategies." Journal of Consumer Research, September 1998.)
References: Consumer Behavior by Leon G Schiffman and Leslie Lazar Kanuk, Prentice Hall India "Paradoxes of Technology: Consumer Cognisance, Emotions, and Coping Strategies." Journal of Consumer Research, September 1998. E-references: http://cbu-socialmarketing.wikispaces.com, Apple Inc, financial statements (via Wikipedia)