21.22 Market Entry and Diffusion
Product Life Cycle model
Bass (1969)
Discussion of sales has 2 types
Innovators
Imitators
\(p\) = coefficient of innovation (fraction of innovators of the untapped market who buy in that period)
\(q\) = coefficient of imitation (fraction of the interaction which lead to sales in that period)
\(M\) = market potential
\(N(t)\) = cumulative sales till time \(t\)
\(M - N(t)\) = the untapped market
Sales in any time is People buying because of the pure benefits of the product, plus people buy the product after interacting with people who owned the product.
\[ S(t) = p(M- N(t)) + q \frac{N(t)}{M} [M-N(t)] \\ = pM + (q-p) N(t) - \frac{q}{M} [N(t)]^2 \]
one can estimate \(p,q,M\) from data
\(q > p\) (coefficient of imitation > coefficient of innovation) means that you have life cycle (bell-shaped curve)
Peter N. Golder and Tellis (1993)
Previous use
limited databases (PIM and ASSESOR) (Urban et al. 1986)
exclusion of nonsurvivors
single-informant self-report
New dataset overcomes these limitations and show 50% of the market pioneers fail, and their mean share is much lower
Early market leaders have greater long-term success and enter on average 13 years after pioneers.
Definitions (p. 159)
- Inventor: firms that develop patent or important technologies in a new product category
- Product pioneer: the first firm to develop a working model or sample in a new product category
- Market pioneer is the first firm to sell in a new product category
- Product category: a group of close substitutes
Boulding and Christen (2003)
At the business level, being the leader can give you long-term profit disadvantage from the samples of consumer and industrial goods.
First-to-market leads to an initial profit advantage, which last about 12 to 14 years before becoming long-term disadvantage.
Consumer learning (education), market position (strong vs. weak) and patent protection can moderate the effect of first-mover on profit.
Peter N. Golder and Tellis (2004)
Research on product life cycle (PLC)
Consumer durables typically grow 45 per year over 8 years, then slowdown when sales decline by 15%, and stay below those of the previous peak for 5 years.
Slowdown typically happens when the product penetrates 35-50% of the market
large sales increases (at first) will have larger sales declines (at slowdown).
Leisure-enhancing products tend to have higher growth rate and shorter growth stages than non leisure-enhancing products
Time-saving products have lower growth rates and longer growth stages than non time-saving products
Lower likelihood of slowdown correlates with steeper price reduction, lower penetration, and higher economic growth
A hazard model gives reasonable prediction of the slowdown and takeoff.
Van den Bulte and Joshi (2007)
Innovations market have two segments:
Influentials: aware of new developments an affect imitators
Imitators: model after influentials.
This market structure is reasonable because it exhibits consistent evidence with the prior research and market (e.g., dip between the early and later parts fo the diffusion curve).
” Erroneously specifying a mixed-influence model to a mixture process where influentials act independently from each other can generate systematic changes in the parameter values reported in earlier research.”
Two-segments model performs better than the standard mixed-influence, the Gamma/Shifted Gompertz, the Weibull-Gamma models, and similar to the Karmeshu-Goswami mixed influence model.