Models of New Product Diffusion Through Advertising and Word-of-Mouth Joe A. Dodson, Jr.; Bitan Muller Management Science, Vol. 24, No. 15 (Nov., 1978), 1568-1578. Stable URL: Ittpslinksstor.orgsicisici=0025-1909%281978 115429243 15%3C156853 MONPDT%3E2.0.CO%B21 Management Science is currently published by INFORMS. Your use of the ISTOR archive indicates your acceptance of ISTOR's Terms and Conditions of Use, available at flip: feworwjtor org/aboutterms.htmal. ISTOR's Terms and Conditions of Use provides, in par, that unless you fave obtained pcior permission, you may not dowaload an cnt isus of @ journal or multiple copies of articles, and you may use content inthe ISTOR archive only for your personal, non-commercial uss. Please contact the publisher cegarding any further use of this work. Publisher contact information may be obtained at bupsferwer,jsto.org/joumals/informs. btn. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transtnission. ISTOR is an independent not-for-profit organization dedicated to creating and preserving a digital archive of scholarly journals. For more information regarding ISTOR, please contact support @jstor.org- hup:shrwwjstor orgy Mon Nov 14 12:41:20 2005vot A Ne is Novena STE MODELS OF NEW PRODUCT DIFFUSION THROUGH ADVERTISING AND WORD-OF-MOUTH* JOE A. DODSON, JR.} xo EITAN MULLER ‘A model ef the difusion process developed which recognizes (I) the iteration between adopters and roneadaples 2nd (2) the influence of external information sources such 28 sdvertsig. The mode i extended by woorparating the eects of sepeat purchasing The ‘models writer by tbe fllowing authors ae shown to be special eases of this model: Gould, Nerlove and Arow, Vidale and Wolfe, Palda, Bas, Nicosia, and Glast. The behavioral sssumptiogs which support the model are made expliit 12d the implications of these ‘sssumpuos far the shape of the new product gawth curve are dedved. (MARKETING; MARKETING SUYER BEHAVIOR; HEALTH CARE—EPIDE. MIOLOGY) 1. Introduetion ‘A manager seeking fo introduce a new product into the marketplace has a limited number of variables under his control. The marketing manager must understand how these decision variables impact the diffusion process if he hopes to use them effec- tively. The theory of adoption of new procucts by a social systems bas been reviewed bby Rogers (17). These ideas have been expressed mathematically in diffusion models which emerged early in epidemotogy (1), (2), and (11), A general model of the diffusion process which explicitly deserines the influence of advertising and word-of-mouth is presented in the next section, § introduces che repeat purchase mode! and 4 shows that it generalizes several models such as those of Nerlove and Arrow [13], Gould [8}, Vidale and Wolfe (22), Palda [16}, Bass (3), Nicosia {14}, and Glaister (7) 2. A General Diffusion Madel For Durable Products, ‘This section introduces a model which can be used to predict industry sales of a durable product, Let the number of people in the market, V, be divided into x(*)}—the aumber of people who are unaware of the existence of the product, p()—the number of potential customers who are aware of the product but have not yet purchased it, and 2(2)—the number of current customers who have purchased the product. By definition x() +209 + 20) = NO o “The variables x, y, 2 represent states in the diffusion process. At any point in time & consumer will be in. one of these states,’ A behavioral conceptualization of the progrest of 2 consumer from unawaseness through attcude change to ultimate purchase has been given by Lavidge and Steiner (10). ‘One variable influencing the movement of consumers through these states for a new product is the information acquired from contact with prior purchasers, ie, word-of- mouth (23), Early adopters of a new product or new idea interact with other less + Accepted by George H. Haines, J rezeived Apel 29, 1976. This paper has been withthe suthors 11 month fr 2 revisions YN, W. Ayer ABH International, New York + Univesity of Peonsyivania "This representation is similar to but diferent from that proposed by Urban (211, This formulation ‘excludes the possitilty of purchase without knowledge of the prod’ existence asthe cae wit imple fouying 168 025-1909 /75/2415/1S68SO.25 onyrant 908, Toes cf Managment SenetMODELS OF NEW PRODUCT DIFFUSION 1569 innovative members of the group. The potential adopters may be influenced in their purchase timing by the early adopters of the product, Also a certain proportion of potential customers may purchase the product independently of the influence of ‘word-of-mouth, This inducement to purchase will represent the effects of distribution, promotion, advertising, and other forms of marketing effort, ‘The general model can be formulated as HD = — Ber) + 20) ~ wee @) PEO) = BX + 29) + Hl) — Os @ 2M= v0) a) where « dot above 2 variable denotes differentiation with respect (o time, B reflects the impact of word-of-mouth, and sand + reflect the effects of the marketing efforts of the firm, More precisely, the explanation of this set of equations is: (a) The people who know. y(2) + 7(2), contact and inform a total of BCv(A + 264), out of which only 2 fraction x(1)/N() are newly informed. Thus 6 = B/N(2). Tn addition, ovt of the total number of people informed through advertising wN(0), only 1 fraction x(A)/ N(0) ate newly informed (b) The number of people who know but did not yet buy is increased by those newly informed fx(A(p(2) + 2() + xt) and decreased by those who buy (2). (©) The number of people who buy the product is »p(). Note that in the case of a durable, if we assume that cach consumer buys exactly one unit, equation ¢c) describes the sales, ic., denoting the sales by s(i), we have s(2) > #(1). This description is similar to that used by Gould (8), It represents a more realistic ‘extension of the simpler cases considered by Gould since it includes both the effect of word-of-mouth and the effect of ather sources of information, ez, advertising. Its relation to Gould's motel will be highlighted later. A similar model was presented by Bernhardt and Mackenzie (4). The model is developed in more detail here to highlight the influence of advertising and word-of-mouth on the diffusion process, to clarify ts felationship with previous work in marketing, and to lay the groundwork for an extension of the model to situations which involve repeat purchasing, Consider the case where there are a fixed number, N, of potential cusumess of & product? After buying the product, a purchaser is removed from the group of potentia! consumers. This is a restrictive assumption which does not allow for repeated purchases, Nonetheless this mode! may be oredictive of the diffusion of such products as color television sets, refrigerators, washing machines, and other types of consumer durables in their early stages. The time frame over which sales would be predicted would have to be shorter than the replacement cycle for this model to be considered descriptive of such market. And, the size of the market N’ would have 19 be stable. Full discussion of the model is postponed until repeat sales is introduced in the next section, However, it is useful at this point to consider some special cases of the model in order to clarify its relationship to carlier work and to make explicit the impact of the firm’s decisions on the diffusion process. (A) Case L. Consider first the case in which (1) = 0 for al, This might be the case when the new introduction provides such a significant improvement over existing alternatives that everyone who becomes aware of its existence adopts it. (2) becomes £(O) = — Be(Q2(1)— wx(), @) Suggestions for incorporating a constant rate of entry and ext feom the population of potential comumers in reduced wertiont ofthe madel ate presented by Herthaedt and Mckenzie [4