Eager Sellers and Stony

Buyers
Aansh Suri

Amey Sonar

Arko Ghosh

Puja Priya

Shreya Srivastava

Tushar Jain

Understanding the Psychology of New-Product Adoption by John T.

Gourville

 New products fail at the rate of 40-90%

 U.S. packaged goods: 70-90% of 30000 fail within 12 montha
 47% of new category-products fail
 Ex. Segway sold 6000 scooters as opposed to forecast of 50000-
100000

Why innovations fail?

Costs associated with behavior change

 Transaction costs (Cell service providers)

 Learning costs (manual to automatic vehicles)
 Obsolescence costs(VCRs to DVDs)
  Psychological costs: People irrationally overvalue their current
possessions

THE PSYCHOLOGY OF GAINS AND LOSSES

 Executives believe they only need to make objectively better-

than-existing products (relative advantage)
 Losses and gains : Psychologist Daniel Kahneman- People evaluate
attractiveness of product :
 on Subjective or perceived value, not objective
 relative to the products they own
 improvements as gains, and shortcomings as losses
 Loss aversion: losses have > impact than gains, Ex. Gains from a
bet must be more by a factor of 2/3 than losses
 Endowment effect:
 Consumers value what they have > what they could obtain
 demand two to four times more compensation to give up
products that they already possess than they are willing to
pay to obtain these items in the first place.
 Status quo bias: giving up what they already have seems like a
painful loss and shrinks their desire to trade. Magnitude of the
bias rises over time (by a factor of 2-4)

BUILDING A BEHAVIORAL FRAMEWORK

 Innovations and behavior change: An added benefit is a gain, and

a benefit taken away is a loss ex. TiVO DVR
 Consumers and behavior change: gains and losses relative to the
existing products, Overvalue the losses of their owned products
by a factor of 3. Ex. Webvan
 Companies and behavior change:
 developers operate in a world where their innovation is the
reference point
 consider the value addition from the innovation, not the
existing value of the incumbent product
 Overvalue the innovation by a factor of 3
 Total factor of 9x( 3*3)
BALANCING PRODUCT AND BEHAVIOR CHANGES

 Easy sells : limited changes, require limited adjustments in

behavior, High acceptance, low benefits. Ex angled toothbrush
 Sure failures: limited change, few benefits, significant behavior
change Ex. Dvorak v/s QWERTY
 Long hauls: technological leaps, great value, huge behavior
change, high consumer resistance Ex. Cellular telephones
 Smash hits : great benefits, minimal behavior change Ex. Google
ACCEPTING RESISTANCE

 Be patient: anticipate slow, long-drawn adoption Ex. DVD players

v/s TiVo units
 Strive for 10 x improvement: make relative benefits > potential
losses Ex. MRI v/s X-rays
 Eliminate the old: Eliminate the incumbent product, ex. Canadian
government eliminated dollar bills before coming out with coins/
 Restricting the use or imposing tax on the incumbent, ex.
Innovative vehicles

MINIMIZING RESISTANCE

 Make behaviorally compatible products: The Prius provides

drivers with both the traditional internal-combustion engine
and an innovative, self-charging electric engine.
 Seek out the unendowed : seek out consumers who are not yet
users of incumbent products. Burton Snowboards, which
makes winter weather–related equipment, targets young
winter sports enthusiasts who haven’t yet established
themselves as skiers.
 Find believers: seek out consumers who prize the benefits they
could gain from a new product or only lightly value those they
would have to give up. ex. Environmentally conscious
consumers to sell hydrogen-powered vehicles