Diffusion (business)

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 is similar to diffusion except that it deals with the psychological processes an individual goes through, rather than an aggregate market process.

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

There are three theories that proport 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 theory - products tend to be expensive at first, and therefore only accessible to the wealthy social strata - in time they become less expense and are diffussed to lower and lower strata
• 3) The E.M.Rogers Adoption theory - for any given product category, there are five categories of product adopters:
  • innovators
    • venturesome, educated, multiple info sources
  • early adopters
    • social leaders, popular, educated
  • early majority
    • deliberate, many informal social contacts
  • late majority
    • skeptical, traditional, lower socio-economic status
  • laggards
    • neighbours and friends are main info sources, fear of debt

There are four 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 - 3 examples of penetration models are:
  • Bass trial only model
  • Bass declining trial model
  • Fourt and Woodlock model
• 2) Trial/Repeat models - number of repeat buyers is a function of the number of trial buyers
• 3) Deterministic models - assess number of buyers at various states of acceptance - later states are determined from calculations to previous states
• 4) Stockastic models - recognize that many elements of the diffusion process are unknown but explicitly incorporate probabilistic terms

see also: marketing, New Product Development, Product Life Cycle Management, marketing management, marketing plan

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