Diffusion of Innovation & Product Life Cycle Strategies

What is the diffusion of innovation?

the process by which an innovation is communicated through certain channels over time among the members of a social system

Diffusion of Innovation five categories

1. innovators

2. early adopters

3. early majority

4. late majority

5. laggards

I. Innovators (characteristics)

• eager to try new ideas

  • higher income, better educated, more “cosmopolitan”

II. Early Adopters

• adopt early in PLC

  • more reliant on group norms & values than innovators

  • strongest opinion leaders

III. Early Majority

• Deliberate carefully before adopting

  • collect more info, evaluate brand alternatives

  • friends of opinion leaders

IV. Late Majority

• Skeptical, adopt because most other people have adopted

  • pressure to conform

  • older, below average income & education

V. Laggards

• Independent, tradition-bound

  • decisions made in terms of past

  • by the time of adoption, innovation is rendered obsolete

  • lowest socioeconomic status

Product Life Cycle Stages

1. Development

2. Introduction

3. Growth

4. Maturity

5. Decline

1. Introduction stage characteristics

sales: slow growth

profits: negative

customers: visionaries, innovators & early adopters

competitors: few

introduction stage Marketing mix

Marketing strategy: gain awareness

promotion: build awareness, stimulate trials & primary demand

distribution: gain selective distribution outlets

price: skimming or penetration

product: basic (restrict variations of product)

2. Growth Stage characteristics

sales: fast growth (grows at an increasing rate)

profits: rising, may reach peak

customers: early adopters (increased repeat purchases)

competitors: appear, start to enter & grow

the “Tipping Point”

the transition between introduction and growth when the product either survives or exits. The majority of new products fail at this point.

Growth Stage Marketing Mix

Marketing Strategy: stress differentiation

promotion: Ad emphasis switch to selective demand, stress points of difference

distribution: gain as much as you can, extensive dealers

price: stable or falling profit margins/price due to increased price competition

product: new or modified product features

selective demand

-occurs in the growth stage

-demand at product level (ex: buy iPad or Samsung tablet?)

3. Maturity Stage characteristics

• sales: peak sales then slowing down of industry sales

• profits: flat/decline (due to fierce competition and rising cost of getting new buyers)

• customers: majority (repeat purchases)

• competitors: well-established stay

Primary demand

-demand at product class level (ex: buy car, phone or TV?)

Maturity Stage Marketing Mix

promotion: hold market share by further differentiation from competitors & getting new buyers; reminder-oriented to build loyalty

distribution: maximum outlets, heavy trade allowances to retain shelf space

price: meet competition, lowest

product: full-product line, diversified to suit different needs

Maturity Stage modifying strategies

1. product modification

2. market modification

product modification

1. product bundling (combine features to exist in one product, ex: apple iphone)

2. new characteristics

market modification

1. finding new customers

2. increasing a product’s use

3. creating a new use situation

why do we need maturity stage product & market modifications?

to stay in the maturity stage as long as you can

maturity stage has…

the most severe competition & only major/powerful competitors can stay

what is harvesting?

ex: Tab (cocoa-cola brand)

no promotion or ad of the product, minimize cost, keep price low, but still sell it for the select customers who still use the product

4. Decline stage characteristics

(Enter due to technology or environmental changes)

Sales: declining

Profits: declining, becomes negligible or zero

Customers: people who have not adopted the replacement yet

Competitors: competitors exit the market

What strategies can the company take if in decline stage?

Harvesting or deletion

Decline Stage marketing mix

Promotion: reduce to level needed to obtain hard-core loyals

Distribution: selective, phase out unprofitable outlets

Price: low to reduce stock

Product: phase out the weak

2 pricing strategies

1. Skimming

2. Penetration

What is price skimming?

High price to cover high R&D and launching costs, then gradually reduce the price (skim the price)

What is price penetration?

Start with a low price to try & penetrate your market and then increase price gradually

what are challenges faced in the introduction stage?

-only player in the market, failure rate can be high, learning curve, have to educate consumers & convince them to switch to your product

What are opportunities for the introduction stage?

-leader in the market, easier to build brand, less competitors