Modeling the market growth of new products

This study attempts to develop an alternative innovation diffusion model to comprehend the market growth behaviors of new products. It takes a microapproach and utilizes the product attribute theory to construct a multidimensional attribute space, in which the preference heterogeneity of consumers, their choice behaviors, and the consequent diffusion of a new product are analyzed. A descriptive approach to decision behavior under uncertainty is also adopted for the model development.

The model developed in this study, although similar to the Bass's benchmark model (1969), provides the advantage that the model parameters are composed of consumer behavioral and decision variables. The concept of diffusion frontier illustrates intuitively a dynamic process of new product diffusion. Studies on model properties show that the relative perceived advantages of a new product have a nonlinear relationship with its market potential. When such advantages are low, they affect only the diffusion rate of a new product, but not the market potential. When they are high, they affect the both. The salience of product attributes seems to be inversely related with the market potential of the product with no impact on the diffusion rate. Consumer behavioral parameters, as measured by the size and dynamic effects, have great impact on the patterns of new product diffusion. The results from our validation study support the proposed model specification: The generic square root term captures the long-term new product market growth pattern; The inclusion of U^new; term explains the variation around the general trend with the changes of consumer income and new product price.

It is concluded from this study that the product attribute theory can be used productively to develop an alternative model of new product diffusion. The inclusion of consumer perceptual, behavioral and decision variables into the model is theoretically more sensible, consistent and comprehensive. The model can offer rich managerial implications concerning new product forecasting and analysis.