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Diffusion (business)

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Diffusion is the process by which a new idea or new product is accepted by the market. The rate of diffusion is the speed that the new idea spreads from one consumer to the next. Adoption (the reciprocal process as viewed from a consumer perspective rather than distributor) is similar to diffusion except that it deals with the psychological processes an individual goes through, rather than an aggregate market process. In economics it is more often named "technological change".

Contents

Theories

There are several theories that purport to explain the mechanics of diffusion:

  1. The two-step hypothesis - information and acceptance flows, via the media, first to opinion leaders, then to the general population
  2. the trickle-down effect - products tend to be expensive at first, and therefore only accessible to the wealthy social strata - in time they become less expensive and are diffused to lower and lower strata
  3. The Everett Rogers Diffusion of innovations theory - for any given product category, there are five categories of product adopters:
  4. Innovators – venturesome, educated, multiple info sources;
  5. Early adopters – social leaders, popular, educated;
  6. Early majority – deliberate, many informal social contacts;
  7. Late majority – skeptical, traditional, lower socio-economic status;
  8. Laggards – neighbours and friends are main info sources, fear of debt.
  9. Crossing the Chasm model developed by Geoffrey Moore - This model overlays the Everett Rogers' adoption curve with a 'chasm'. According to Moore, the marketer should focus on one group of customers at a time, using each group as a base for marketing to the next group. The most difficult step is making the transition between visionaries (early adopters) and pragmatists (early majority). This is the chasm that he refers to. Technologies or products that cannot cross this chasm will die or remain niche. If successful, a firm can create a bandwagon effect in which the momentum builds and the product becomes ubiquitous.
  10. Technology driven models - These are particularly relevant to software diffusion. The rate of acceptance of technology is determined by factors such as ease of use and usefulness.

Rate

According to Everett M. Rogers, the rate of diffusion is influenced by:

  • The product's perceived advantage or benefit.
  • Riskiness of purchase.
  • Ease of product use - complexity of the product.
  • Immediacy of benefits.
  • Observability.
  • Trialability.
  • Price.
  • Extent of behavioural changes required.
  • Return on investment in the case of industrial products.

    • Models

    There are several types of diffusion rate models:

    1. Penetration models - use test market data to develop acceptance equations of expected sales volume as a function of time. Three examples of penetration models are:
    2. Bass trial only model
    3. Bass declining trial model
    4. Fourt and Woodlock model
    5. Trial/Repeat models - number of repeat buyers is a function of the number of trial buyers.
    6. Deterministic models - assess number of buyers at various states of acceptance - later states are determined from calculations to previous states.
    7. Stochastic models - recognize that many elements of the diffusion process are unknown but explicitly incorporate probabilistic terms.

    References

    Diffusion (business) Wikipedia
    (Text) CC BY-SA