Diffusion Theory in Marketing: A Historical Perspective Frank M. Bass, 1999

Transcription

1 Diffusion Theory in Marketing: A Historical Perspective Frank M. Bass, 1999 Before Bass (BB): Tarde: 1903 New Ideas Epidemiology: Disease Rogers (1962): Bell-Shaped Curve- Innovators and Imitators Discussion largely literary 1999-is 30th Anniversary of Publication of Bass Model, Management Science (1969) Copyright, (c) Frank M. Bass, 1999

2 The Bass Model Diffusion of Innovations Mark Twain and the Price of a Lecture Bass Model : Urban and Hauser (1980) More than 250 Papers: Applications, Refinements, and Extensions Central Themes of this Historical Perspective: Empirical Generalization and Science

3 Empirical Generalization: Always (Almost) Looks Like a Bass Curve Adoption of VCR s Actual and Fitted Adoption VCR's Adoption in Thousands Actual Adopt ion Fitted Adopt ion Year

4 History Published in Management Science in1969, A New Product Growth Model For Consumer Durables Working Paper 1966

5 Color TV Forecast 1966 Color TV Sales (x 1000) Peak in 1968 Industry Built Capacity For 14 million units Sales Predic ted Ye ar

6 Empirical Generalizations and Science Philosophy of Science-Nagel (1961): Science Seeks to Provide Generalized Explanatory Statements About Phenomena Marketing Science (1995) Special Issue on Empirical Generalizations in Marketing ETET vs TETE - Ehrenberg Higher Level Theories - Bass

7 Bass Model:100 s of Applications-An Empirical Generalization Widely Cited Numerous Extensions Published in Several Languages Growing Software Applications

8 How to become famous Get Lucky!

9 The Model f(t)/[1-f(t)]=p+qf(t) Hazard Model m=ultimate market potential p=coefficient of innovation q=coefficient of imitation S(t)=mf(t)=m[p+qF(t)][1-F(t)] =pm+(q-p)y(t)-(q/m)[y(t)] 2

10 A Differential Equation Solution: S(t) = m[(p+q) 2 /p]e -(p+q)t /(1+(q/p)e -(p+q)t ) 2 t*=1/(p+q)ln(q/p) t*=time of Peak Sales Beautiful!

11 Special Cases When p=0 and q=0 Fourt and Woodlock q=0, Exponential Distribution, (1960) Grocery Products Journal of Marketing Mansfield, p=0, Logistic Distribution, (1961) Industrial Products (Locomotives) Econometrica

12 Why it Works--Saturation S(t)=m[p+qF(t)][(1-F(t)] Gets Bigger and Bigger Gets Smaller and Smaller

13 An Empirical Generalization Adoption of Answering Machines t Year adoption of answering machines Fitted Adoption

14 Another Example 35 mm Projectors Actual and Fitted Adoption of 35 mm Projectors, , m=3.37 million, p=.009,q=.173 Units Year 35mm Proj Fitted

15 Another Example: Overhead Projectors Actual and Fitted Adoption of OverHead Projectors, , m=.961 million,p=.028,q= Units Overhead Proj Fitted Year

16 Some Extensions Successive Generations of Technologies: Norton & Bass (87,92) Stocks 80 Stock by Generations, Wireless Phones, Generalized Bass Model: Includes Decision Variables: Prices, Advertising Year Stock G1 Stock G2 Stock G3

17 Successive Generations of Technology The Law of Capture-Migration&Growth The Equations: Three Generations S 1,t =F(t 1 )m 1 [1-F(t 2 )] S 2,t =F(t 2 )[m 2 +F(t 1 )m 1 ][1-F(t 3 )] S 3,t =F(t 3 ){m 3 +F(t 2 )[m 2 +F(t 1 )m 1 ]} m i =incremental market potential for gen.i t i =time since introduction of ith generation and F(t i ) is Bass Model cumulative function and p and q are the same for each generation

18 Capture Law- DRAMS Norton and Bass: Management Science (1987) Sloan Management Review (1992) Four Generationsof DRAMS: 4K, 16K, 64K, 256K, 1sr Quarter th Quarter 1985, Actual and Fitted Shipments, p=.0037, q= Thousands Quarter 4K-A 4K-F 16K-A 16K-F 64K-A '64K-F 256K-A 256K-F

19 Capture Law-Mainframes-Beautiful! Generations of Mainframe Computers (Performance Units) Sales Year Gen1 Actual Gen1 Fit and Forecast Gen2 Actual Gen2 Fit and Forecast Gen3 Actual Gen3 Fit and Forecast Gen4 Actual Gen4 Fit and Forecast

20 Generations of PC s World Wide Sales of Generations of Desktop PC's Unit Sales in Millions Year 8 Bit 16 Bit 32 Bit

21 What About Prices? What About Prices? The Generalized Bass Model With Prices, Advertising, and other Marketing variables the curve is shifted with different policies but the shape stays the same. Explain Why Adoption Curves Always Looks The Same Even Though Policies Vary Greatly: Model Must Reduce to Bass Model

22 Generalized Bass Model: Bass, Krishnan, and Jain (1994) Marketing Science A Higher Level Theory Must Reduce as Special Case to Bass Model Prices Fall Exponentially Prices of VCR's Based on Sales Data and HH Adoption Data Price Based on VCR Sales Data Price Based on Household Adoption Data

23 The Bass Model (BM) and GBM BM: f(t)/[1-f(t)]=[p+qf(t)] GBM: f(t)/[1-f(t)]=x(t)[p+qf(t)] where x(t) is a function of percentage change in price and other variables

24 Effects of Different Prices GBM-Diffusion Under Two Different Pricing Schemes Sales (Adoption) Time 10% Below Baseline Prices Baseline Price

25 Impulse Response Comparison: GBM and Current Effects Model Carry-Through Effects for GBM Impulse Response of 20% Percent Price Reduction in Period 4 for GBM Compared with a "Current Effects" Model-Curve Shifts to the Left for GBM, But Returns to Baseline for Current Effects Model Millions of Units Year Impulse at t=4, GBM Adoption Baseline Adoption without Impulse at t=4 Impulse Response at t=4, "Current Effects" Model

26 Some Applications Guessing Without Data: Satellite Television Satellite Telephone (Iridium) New LCD Projector Wireless Telephone Adoption Around World and Pricing Effects Projecting Worldwide PC Growth

27 Satellite TV Forecast Guessing By Analogy and Purchase Intentions Use of Adjusting Stated Intention Measures to Predict Trial Purchase of New Products: A Comparison Journal of Marketing Research (1989), Jamieson and Bass Guessing By Analogy : Cable TV vs.color TV

28 1993 Forecast of Satellite TV Penetration in Bass Model Forecast of Satellite TV Subscriptions Under Scenario Chosen By Management Compared With Actual, (99 Projected from February) Actual through February, Projected through June =9.989 Million Forecast 1999 =9..4 Million Millions * Year Rapid Diffusion Like Cable in 80's and Lower Potential 16% of TV Homes Measured Actual Number of Television Homes

29 Projection of World-Wide PC Demand, Data From Bill Gates, Newsweek Millions of Units Actual Worldwide PC Shipments, and Fitted and Projected Shipments, , m=3.384 Billion, p=.001, q=.195 Shipments Includes Replacements (Upgrades) 697 Million Units Shipments through 1999 Peak Year World Wide PC Shipments Fitted World Wide PC Shipments

30 Bottom Line and Quotation In Forecasting the Time of Peak It is Helpful to Know that a Peak Exists By Frank Bass