Exam 1 Guide.docx

**Class \#1** - **Compromise Effect**: The tendency to favor middle options - It is **stronger** when **uncertainty is higher** (choice, time, product expertise) - It suggests that you can manipulate choice by manipulating a range of options - Think of articho...

**Class \#1** - **Compromise Effect**: The tendency to favor middle options - It is **stronger** when **uncertainty is higher** (choice, time, product expertise) - It suggests that you can manipulate choice by manipulating a range of options - Think of artichoke and Starbucks example - **Design Thinking**: 1. Empathize 2. Define 3. Ideate 4. Prototype 5. Test - 12 **Behavioral Tactics** to convince consumers think of COVID 19 vaccine - - Segment by identity barriers - Find common enemies - Use analogies - Increase observability - Leverage natural scarcity - Predict and address negative attributions - Prompt anticipated regret - Avoid piecemeal risk information - Promote compromise options - Create FOMO - Combat uniqueness neglect - Neutralize base-rate fallacy **Class \#2** - New products typically follow common diffusion patterns - Innovations usually diffuse in S curves - From electricity example - **People are afraid of change** and infrastructure takes a lot of time - Seeing other people do things encourages non-believers - **Everett Rogers**: The Diffusion of Innovations - Interested in seeing when people bought and sold things - It depends not on the innovation but on the people championing it - **S-Shape**: Exponential growth as people see others do things - Innovation is a word-of-mouth process - Characteristics of people as innovators - Change agents: His research predicts the power of social media influencers - Basis for the "Bass Model" - **5 Steps to Adoption** - **Knowledge**: exposure to its existence, and understanding of its functions - Learning about a new product through a friend - **Persuasion**: the forming of a favorable attitude toward it - Agreeing that it is a good product - **Decision**: commitment to its adoption - Actually buying it at the store - **Implementation**: putting it to use - Using it at home - **Confirmation**: reinforcement based on positive outcomes from it - Having a good experience while using it - **Roger's Diffusion of Innovation** - Different consumers make it through the steps at different speeds - Categories of Innovativeness - Innovators - Early Adopters - Early Majority - Late Majority - Laggards (if this is a larger % than the innovators, it's better to target them since they are bigger) - What influences the speed of adoption? - 5 basic attributes of innovation - They are robust across all innovation types - Explain 49-87% of variance in adoption rate - **Innovation Characteristics** think of iPod example - **Relative Advantage**: the degree to which it is perceived to be better than what it supersedes - **Compatibility**: consistency with existing values, past experiences and needs - **Complexity**: difficulty of understanding and use - **Trialability**: the degree to which it can be experimented with on a limited basis - **Observability**: The visibility of its results or users - Relative Advantage is supreme because: - Most predictive of success - Incentives of work by increasing relative advantage - Slow rate of adoption for preventative innovations due to difficulty in determining relative advantage. - The Rate of Adoption - It is important to track because there are two important predictions needed: - Universe of possible adopters - Predicted timeline - **Bass Model** (Frank Bass) - Assumes that sales of a new product are primarily driven by **word-of-mouth** from satisfied customers - At the launch of a new product, mostly **innovators** purchase it - Those who purchase primarily because of the influence of owners are called **imitators**. - A realistic schedule for change. - Ability to forecast from small amounts of data. - **Takeaways** - The diffusion of most innovations typically follows a generalized pattern. - This pattern has been quantified into a mathematical model that allows for a strong forecasting. - This pattern is grounded in social processes (human response to change) even for technological innovations. - Human perception of five innovations characteristics can speed/slow adoption. - HT managers can focus on relative advantage to the detriment of other important characteristics. **Class \#3** - **Roger's Diffusion of Innovation** - **Different consumers** make it through the steps at different speeds - Technology Adoption Cycle (TALC) - Technology Acceptance Model (TAM) - From Innovators to Laggards: - Innovators (venturesome) - Early Adopters (restable, status) - Early majority (deliberate) - Late majority (skeptical) - Laggards (traditional, resistant) - **Innovators according to Rogers**: - Have more formal education - Higher socioeconomic status - More exposure to mass media channels of communication - More exposure to interpersonal channels - More change agent contact - More social participation and more cosmopolite - **Big Five (OCEAN)** = - **O**penness - **C**onscientiousness - **E**xtraversion - **A**greeableness - **N**euroticism - Erica Von Hippel's **Lead User Theory** - A **lead user** is - A person or firm who face needs that will be general to the marketplace but face them months or years before the marketplace - A person or firm who would benefit significantly from obtaining the solution to those needs - **4 steps to using lead users** - Identify market / technical trend - Identify lead users (tinkerers) - Analyze lead user need data - Project user data to general market - User Testing - Observation of lead & median users - UX: user experience - Moving away from innovators is key - Geoffrey Morey: Crossing the Chasm - There are "**chasms**" between each consumer type - **From Innovators to Early Adopters:** - Innovators as "gear heads" and tech enthusiasts - Early adopters as innovative consumer visionaries - **Three challenges:** - Compelling action - Tech firm marketing inadequacies - Going to early adopters too soon - **From Early Adopters to Early Majority:** - Early adopters as innovative consumer visionaries - Early majority are pragmatic problem-solving consumers - **Three challenges:** - Spell it out - Give references - Connect and coordinate - If you make it across that chasm, Moore describes this as moving into "**The Tornado**" monitor these metrics: - **Acquisition**: - Rate of getting new users - **Engagement**: - Average length, depth, and frequency of user engagement - **Monetization:** - Percentage of total users that participate in the business model - **Enlistment**: - Virality: \# of new consumers coming from old consumers, high NPS - Churn: \# of consumers defecting, low NPS - **From Early Majority to Late Majority:** - Early majority are pragmatic problem-solving consumers - Late majority are loss-aversion focused - **Three challenges:** - Keep up with the competition - Stay service oriented - Don't churn - **From Late Majority to Laggards**: - Late majorities are conservative, and loss-aversion focused - Laggards as skeptical of the core element or have minimal needs - **Three challenges:** - Use laggards to stay true to promises - Offer simplified promises - **Pioneer's Advantage** - Lots of evidence that first to market have long-lived market share advantages - Consumer-based advantages: - Sets learning standard - Sets attribute preferences - Inhibits new learning or trial - Consumer lock-in - New category definition - Producer-based advantages - Quicker to economies of scale - Better insight from learning curve - Set dominant design (industry standard) - Preempt scarce resources - Target most profitable customer base - **Pioneer Perils** - - Free-rider effects - Leapfrogging technology - Shift in consumer tastes (or better info) - Better info on best target market - "Incumbent inertia" - Failure to adapt to competition & market - Harder to commit resources first - - The key component to pioneer risk is **uncertainty** - Competitive, market and product - Innovation Strategy Types - Firms should strategically decide whether to be the pioneer - Different industry characteristics and different capabilities and may make non-pioneer strategy more attractive - This decision is an important part of the larger strategic planning process - 4 Innovation Strategy Types - **The Product Leader**: aka pioneer, prospector, first mover - **Pros**: establishes a barrier to entry, higher profits from skimming