Innovation on demand and consumption

Question 1

Define-
a) diffusion
b) diffusion rate

Answer 1

a) process by which innovations are adopted by consumers and other firms
b) relative speed at which innovations are adopted

Question 2

Why is it hard to predict rate of diffusion?

Answer 2

New wants, needs and competitive advantages overtime.
Depends on the evolution of new rivals especially when tech is converging. Which trends will influence demand in the future is unknown.

Question 3

What are the assumptions of the diffusion curve under the epidemic model?

Answer 3

• rate of new cases in proportional to the product if the number infected and those that have the potential to be
• each exposure increases the probability of buying regardless of who conveys the message
• each exposure increases the probability of buying regardless of the quality of the pioneers experience

Question 4

Why are the assumptions of the epidemic model regarding the diffusion curve not realistic?

Answer 4

• more likely to listen to people they know and trust
• good experiences promote diffusion, whilst bad experiences retard diffusion

Question 5

Explain the shape of the epidemic model diffusion curve.

Answer 5

S shaped, not necessarily symmetric.
Greatest pace of diffusion is during middle of cycle, after peak diffusion slows down
Will become saturated in long run.
Can be plotted against which consumers purchase at what point e.g innovators to laggards.

Question 6

What drives diffusion / determines the pace of diffusion?

Answer 6

• price and quality
• income and firm size
• strategic decisions
• ## distinction effects

Question 7

Explain Moores law. Show on diagram.

Answer 7

Initally the rate of components needed for semiconductor chips were doubling annually but at tech matured the number of components required fell which decreased the price per component.
Price (Y axis) falls as tech matures (X axis in years)

Question 8

What does the bell curve portray?

Answer 8

Compares the price and type of consumers willingness to pay. Initially no one is willing to pay for the new tech, as price declines more consumers drawn into the market. Initally just innovators and early adopters. When reaches peak all buyers for application can afford it so demand is no longer constrained by price.

Question 9

What does the bell curve tell us about diffusion? What are its limitations.

Answer 9

The speed of diffusion is dependent on speed of price decline and variance of consumers willingness to pay.
Limited as not just price that invites new customers to market e.g quality etc.

Question 10

Why do strategic decisions affect the pace at which innovations spread? When is this strongest?

Answer 10

Driven by the desire to gain competitive advantage in terms of cost, quality or performance.
Strongest when diffusion is not widespread in the market and price and quality and income are not important.

Question 11

When is income and firm size most important in diffusion? Why does this create slow diffusion?

Answer 11

When price and quality are relatively stable. Faster with small businesses as grow faster.
Slow to diffuse as GDP per capita only increases by 3% per year.

Question 12

How do bandwagon effects promote diffusion?

Answer 12

Firms adopt innovation due to competitve pressure. Receive direct network benefits from adopting tech that other firms have and also means large networ = reliable tech.
Firms may adopt if rivals trying to use tech to take market share from them.

Question 13

How do bandwagon effects result in de facto standards and why does this create rapid diffusion?

Answer 13

Race to get their tech ‘locked in’, opportunity for this encourages new entrants into the market.

Question 14

How do distinction effects retard diffusion?

Answer 14

More firms adopt = some firms choose not to as distinction falls. Suggests there are limits to diffusion when too many adopt tech.

Question 15

Describe the difference between active and passive consumers?

Answer 15

Depends on the level of activity they put in at different stages e.g demand process, purchasing stage and consumption.

Question 16

What does an economic consumer base their consumption on?

Answer 16

Rational consumer that bases demand and consumption on a bundle of goods portraying their preferences that acheives the highest utility. They aim to optimise their consumption with respect to their income constraint.
Their wants and needs are normally fixed and pre-determined on price and quality.
If new characterisitcs are added to a good dont provide extra utility they wont consume it.

Question 17

How does innovation fit with economic consumers?

Answer 17

Welcomes product innovation in the sense that the addition of more characteristics that they value.
Welcomes process innovation that reduces production costs allowing them to buy more goods with their income.

Question 18

Are economic consumers active or passive?

Answer 18

Active in optimising purchasing behaviour
Passive in consumption

Question 19

What category of consumer does economic consumer fit in?

Answer 19

Between early majority and late majority (depends on whether change price or quality)
If improve quality then more likely to be early majority .
If decrease price they might be late majority so that they delay purchase and wait for price to fall more when production costs begin to be optimised in the latter stage of PLC.

Question 20

What is a Veblen consumer?

Answer 20

The desire to consume is to draw attention to themselves (signal their distinction through consumption of expensive items) via concept of conspicuous consumption.

Question 21

What effect do Veblen consumers have on producers/innovators?

Answer 21

Doesnt always need to be need as with Veblen customers there will always be a demand for distinction.

Question 22

Are Veblen customers active or passive? Why can Veblen customers vary?

Answer 22

Active in choosing consumption that will satisfy their need for displaying wealth
Active in consumption as purchase wont be distinctive without demonstrating distinction.
Varies as one cosumer may demonstrate their wealth buying novel (latest models) such as new Rolls ROyce whereas others might seek antiquity.

Question 23

How does innovation fit with with Veblen customers and what category do they fit in?

Answer 23

Radical innovations offer opportunity to show distinctiveness
Early adopters

Question 24

What is a Bourdie consumer? Give an example.

Answer 24

Seek distinction with more modest expenditure that is distinctively different. E.g instead of buying expensive new car, may buy an all electric car to signal green credentials.

Question 25

What category does Bourdie consumer fit in?

Answer 25

Early majority.

Question 26

What is a Marshall Consumer?

Answer 26

Often they are innovators themselves, they don’t use innovations how producers anticipated. E.g texting over voicemails. They add value by combining seperate parts and by combining objects. E.g add value to stamps and coins by collecting. Recycle waste materials into furniture.

Question 27

Give an example of the Marshal Consumer in terms of mountain bikes?

Answer 27

Group of road cyclists began riding flat tyred bikes down mountains - when the bikes broke they fixed and improved them then began producing and selling their own frames.

Question 28

What is a Marshall Consumers consumption driven by?

Answer 28

Their own consumer activities.

Question 29

How does innovation fit with Marshall Consumers?

Answer 29

They are innovators themselves. They offer cheaper ways of reaching a level of desired welfare (process innovation)
Receptive to new innovations even if they have no need for it as interested in new undertakings.

Question 30

What category do Marshall Consumers fit in?

Answer 30

Innovators

Question 31

What is a Douglas Consumer?

Answer 31

Consumption is based on group norms and associating with peers. Follow the leader of the group.
Cautious about consuming innovations that might cast doubt on peer loyalty.
Easily shaped by marketers.

Question 32

Give examples of Douglas consumers?

Answer 32

Those that follow influencers on instagram - influencers appeal to douglas consumers. E.g gymshark get customers in a similar setting to cement relationships.

Question 33

What category do Douglas consumers fit in and are they active or passive?

Answer 33

Fit in early majority.
Passive in purchasing as only have discretion over choosing their social group.
Active in consumption as share with peers to affirm membership.

Question 34

What is a Galbraith Consumer?

Answer 34

Consumers that are heavily influenced by mass marketing as EOD is high and responsive (especially persuasive advertising, responsive irrespective of changes in price and quality).

Question 35

How can innovators use Galbraith consumers to their advantage? Why might this not increase wealth?

Answer 35

Manufacturers can work with marketers to manipulate what the consumer wants so their innovation satifies the consumers want.
Wont increase wealth if demands are created by manufacturer and marketer.

Question 36

What category do Galbraith consumers fit in and are they active or passive?

Answer 36

Fit in early / late majority (depending on whether advertising is informative or persuasive)
Passive in purchasing decision, can be active or passive in consumption.

Question 37

What is a routine consumer?

Answer 37

Not influenced by advertising
Dont optimise
Dont seek distinction
Dont seek novelty
Not influenced by peers
Go for tried and tested products as they are suspicious of innovations.

Question 38

What category do routine customers fit in and are they active or passive?

Answer 38

Laggards
Passive

Question 39

Why do marketers need to know the type of customers?

Answer 39

To identify the average customer per country or product so that they can meet their needs.

Question 40

What is an ethical consumer?

Answer 40

Consume with reference to effects on sustainability e,g Fairtrade or energy companies use of smart metres to optimise energy cosumption and reduce neg effects on environment.

Question 41

What is a ruskin consumer?

Answer 41

Consumption choices with reference to effects on labour e.g SHEIN.