Bass Diffusion Model

• The Bass model addresses when customers will adopt a new product or technology
• Addressing this question is important for production environments

Adoption Probability Over Time

• The cumulative probability of adoption up to time t is shown as F(t), which increases over time after the product launch
• The density function represents the likelihood of adoption at time t, denoted as f(t) = d(F(t))/dt

Population: Innovators

• Innovators are the first individuals to adopt a new product or technology
• Driven by a desire for novelty and make independent decisions

Population: Imitators

• Imitators adopt a product or technology after observing others
• Imitators are influenced by social interactions and peer adoption
• Word of Mouth (WoM) includes person-to-person interactions, Amazon ratings, Google map ratings, and discussion groups

Math

• Month 0
• Market Size is denoted as M (e.g., 1,000)
• Adopters are denoted as N (e.g., N=0)
• Non adopters are equal to the market size

Coefficients

• p represents the coefficient of innovation: 0.5% of non-adopters adopt for no specific reason
• q represents the coefficient of imitation: 40% of adopters convince non-adopters to adopt
• 0.005*1000= 5 innovators adopt the product
• 0 imitators adopt a product for no reason

Month 1

• Assume market size is M=1,000
• Adopters = N which is 5
• Non-adopters = 995
• 0.005*995= 4.975=5 innovators adopts
• 0.45/1000995= 1.99=2 imitators adopts

Month 2

• Assume market size is M=1,000
• Adopters are N=12
• Non-adopters = 988
• 0.005*988= 4.94=5 innovators adopts
• 0.412/1000988= 4.73=5 imitators adopts

Transition Rate

• Equation: Rate = innovators + imitators
• Equation: Rate= p*(M-N)+ q * N/M *(M-N)
• Equation: Rate= (M-N)*(p+q N/M)
• Check Months 0-3

Actual Values

• A study suggests p has an average value of 0.03, and q has an average value of 0.42

Parameter Estimation

• Estimation can use data through regression or specialized nonlinear estimation
• Estimation can be performed using analogous products
• Select based on similarity in environmental context, market structure, buyer behavior, marketing-mix strategies, and innovation characteristics

Extensions

• Varying market potential is a function of product price, reduction in uncertainty in product performance, population growth, and increases in retail outlets
• Extensions involving marketing variables and repeat purchases
• Multi-stage diffusion process: Awareness -> Interest -> Adoption -> Word of mouth
• Incorporating Network Structure

Segmentation, Targeting, and Positioning (STP)

• STP Involves segmenting the market, then targeting the segments and then positioning the product
• Segmentation is the first step
• Segmentation -> Clustering
• Porter’s Five Forces, and SWOT are targeting tools
• Positioning -> value proposition, perceptual maps, and market analysis

Segmentation Process

• Segmentation is subdividing a market into distinct subsets of customers
• Members differ between segments but are similar within

Descriptors

• For businesses include industry, size, and location
• For consumers include age, income, education, and profession

Bases

• Are, in the characteristcs, that tell us why segments differ (for example needs, preferences, decision processes)

Segmentation, Product Design and Marketing

• Differentiating a product and the marketing efforts meet the needs of different segments
• It is applying the marketing concept to market segmentation
• Marketing message, sales tactics, pricing, etc., depend on the segment

Stages

• Macro-segments include first stage/rough cut, industry application, and firm size
• Micro-segments include second-stage/fine cut, different customer needs, wants, and values within a macro-segment

Types of Market Segmentation

• Global market segmentation: demographics, psychographics, behavioral characteristcs and decision making
• Demographic segmentation for consumer: income, family make up, age or gender
• Demographic Segmentation for industrial: industry, size or location of company
• Psychographic segmentation: It groups people according to attitudes, values and lifestyles
• Examples of coffee shop market can use psychographic segmentation using socializers who want a place to hang out with their friends

Behavioral Characteristics

• This Segmentation divides customers based on buying habit or frequency
• Can be frequent buyers or on occassional buyers

Decision-Making

• Is segmentation classifying customers based on their decision making roles
• Is used in B2B marketing as well as consumer marketing

Segment Size and Growth

• Important considerations of segment size and growth must Analyze sales, growth rates and expected profitability.

Segment Structural Attractiveness

• Consider effects of: Competitors, Availability of Substitute Products and, the Power of Buyers & Suppliers.

Company Objectives and Resources

• Company skills & resources relative to the segment(s)
• Look for Competitive Advantages.

SWOT (Strengths, Weaknesses, Opportunities, and Threats)

• Used to analyse segments or markets
• SWOT helps to understand how the market will look from different prespectives
• Helps to identify the positives and negatives inside and outside of your company so you plan effectively

Five Forces Model

Two tools to analyze segments or markets

• Consist of
  • SWOT analysis
  • Five forces model

Strengths and Weaknesses

• Strengths include better quality of product or better brand image
• Weaknesses include newness to market

Opportunities & Threats

• Opportunities include growing demand
• Threats include restrictive regulatory

Positioning

• Involves designing an offering in a way that the target segment members perceive it in a distinct and valued way
• Achieved relatative competitors

Ways to Position

• Can make product/service unique, different, or focused on cost

Generic Competitive Strategies

• Strategy which Includes Overall Cost, Differentiation, Focused of both
• The best way to position a strategy is through a value Proposition

Positioning Map

• Products or service are put together
• Must decide position that separate products from competition