Mark Lett (2014) 25:37–52

DOI 10.1007/s11002-013-9239-0

Predicting product life cycle patterns

Yair Orbach & Gila E. Fruchter

Published online: 8 May 2013

# Springer Science+Business Media New York 2013

Abstract In this paper, we propose a new model of adoption and repurchase due to
upgrades driven by the utility of technology products that keep improving. The model
is able to predict product life cycle patterns that could not be explained previously.
Such patterns were used to challenge diffusion theory validity. Mathematically, the
model is described as a nonlinear discrete system that depends on a small set of
parameters. We investigate the dynamic properties of the nonlinear system using
numerical stability analysis. We find domains in the parameters space in which the
equilibrium point and the periodical orbits are stable. The domains correspond to
population heterogeneity, tendency to upgrade, and the influence of industry response
on market dynamics. We also implement our model to fit actual data of two real-
world product life cycles with many irregularities and benchmark the results of our
model vs. well-known models.

Keywords Repeat purchase . Upgrade . Utility . Forecasting . PLC . Nonlinear dynamic

systems . Cycles and chaos

1 Introduction

Some product life cycles, such as the scalloped, described by Buzzell (1966), the
cycle–recycle pattern, described by Cox (1967), and several more presented by Rink
and Swan (1979), cannot be described by existing diffusion models. These cases have
been used as a basis for criticism of the incompleteness of diffusion models and the
product life cycle concept in general (e.g., Tellis and Crawford 1981; Chandrasekaran
and Tellis 2007). Most diffusion models for products that keep improving maintain
the traditional durability assumption of diffusion models and deal with first purchase,
i.e., adoption only (e.g., Bass 1969; Srivastava et al. 1985; Katz and Shapiro 1986;

Y. Orbach : G. E. Fruchter (*)

Graduate School of Business Administration, Bar-Ilan University, Ramat-Gan 52900, Israel
e-mail: gila.fruchter@biu.ac.il
Y. Orbach
e-mail: yair.orbach@gmail.com
38 Mark Lett (2014) 25:37–52

Weerahandi and Dalal 1992; Mahajan et al. 1993; Loch and Huberman 1999; Thun et
al. 2000; Schmidt and Druehl 2005; Van den Bulte and Joshi 2007; Orbach and
Fruchter 2010). Although the subject of repeat purchase has been addressed in
several studies (e.g., Mahajan et al. 1983; Olson and Choi 1985; Steffens
2002), it has not yet been fully covered. Cho (2008) mentions two types of
repeat purchase: replacement and upgrade. Products such as cars and home
appliances are usually replaced when they are worn out. The repurchase due to
wear-out is incorporated in diffusion models together with adoption (e.g., Olson
and Choi 1985; Kamakura and Balasubramanian 1987; Fernandez 1999; Bass
and Bass 2001; Fader and Hardie 2003). These models estimate repeat purchase
according to the product's lifetime statistics. For other products, repeat purchase
is motivated by the launch of versions of the product that had not previously
been available in the market and improved as a result of technological progress.
Consumers upgrade their appliances not as a result of wear-out but due to their
desire to derive a higher utility from the product. For example, in the PC
market, customers tend to upgrade while the older product that they own is still
fully functional. Another example is the mobile phone market where the race to
take advantage of added features and improved services pushes customers to
buy newer phones although their current phones still function. Bayus (1988)
investigated how firms can influence customers to upgrade but does not incor-
porate upgrades in a diffusion model. Steffens (2002) mentions that the re-
placement rate can be accelerated if the product's features change. However, he
still estimates repurchase as a function of time. Gordon (2006) explored adop-
tion and replacement in the PC market where repurchase is driven mostly by
the desire to upgrade. He found that replacement cycle periods are not constant.
Cho (2008) also found that the repeat-purchase rate changes with time and is
influenced by the increase in utility. This indicates that modeling upgrades as a
function of time may not be appropriate.
Upgrades, or repurchases due to obsolescence, were first quantitatively studied in
the framework of generations’ substitution. Norton and Bass (1987)) presented a
diffusion model for products with several generations and included upgrades or
transitions of customers who previously purchased an older generation and switched
to a new one. The theory of generations substitution was developed further by others
(e.g., Mahajan and Muller 1996; Maier 1996; Bass and Bass 2001; and Goldenberg et
al. 2002). Generations substitution models refer to the launch of new versions as a
motivation to upgrade but do not refer to the time at which the previous product had
been purchased or to the utility difference between the new and the already owned
products. Generations substitution models incorporate four additional parameters
(innovation and imitation factors, market size, and launch time) per each new
generation, and thus become complex when there are many gradual improvements
in the product.
In this study, we propose a new model of adoption and upgrades driven by
the utility increase of technology products that keep improving. The model is
able to predict product life cycle patterns empirically documented by Buzzell
(1966), Cox (1967), Rink and Swan (1979), Tellis and Crawford (1981), and
Chandrasekaran and Tellis (2007)). Customers' decisions to upgrade, or to adopt, are
driven by the utility increment generated by the product’s improvements. The utility
Mark Lett (2014) 25:37–52 39

improvements occur between generations and also within each generation. Firms’ de-
cisions to improve their products are motivated by sales opportunities, driven by either
adoption or upgrades. Mathematically, the model is described as a nonlinear discrete
system that depends on a small set of parameters. Applying a numerical stability
analysis, we investigate the dynamic properties of the generated nonlinear system. We
find domains in the parameter space in which the equilibrium point and the periodical
orbits are stable and others in which they are unstable. The domains correspond to
population heterogeneity, tendency to upgrade, and the influence of industry response
on market dynamics.

2 Model development

We consider technological products whose utility keeps improving with time.

We refer to products from the beginning of their product life cycle, when
adoption is dominant in sales volumes, until maturity and decline, when
upgrades become dominant. We assume that a product's durability is such that
repeat purchase due to wear-out can be ignored. In addition, following other
utility-based diffusion models (e.g., Katz and Shapiro 1985; Loch and
Huberman 1999; Thun et al. 2000), we assume that the market comprises one
segment, so that it is homogeneous in its preferences. This assumption enables
us to incorporate all attribute levels according to the product’s utility, which is
determined by its purchase time. We extend the utility-based diffusion models
for adoption presented by Orbach and Fruchter (2010) to include upgrades. It
should be noted that, unlike utility-based diffusion models that rely on network
externalities, such as that proposed by Katz and Shapiro (1985, 1986), which
do not drive upgrades, Orbach and Fruchter (2010) refer to improvements in
the product itself, which may drive upgrades, and not only adoption.
Let f(t) and r(t) be the periodic adoption and the periodic repeated pur-
chases due to upgrades at time t, respectively. Since the sales in the current
research model consist of first purchase sales and repeated purchase sales as a
result of upgrades, the total periodic sales at time t to all customers, s(t), will
be

sðtÞ ¼ f ðtÞ þ rðtÞ ð1Þ

To compute the adoption increase f(t) in Eq. 1, we use the adoption models
developed in Orbach and Fruchter (2010). The purchase driving force of the potential
adopters is equal to the potential market of a product with utility u, m(u), at time t,
multiplied by the adoption consideration rate, α(t). The utility of the product, u, is a
function of the cumulative sales at time t, where they include repeat purchases due to
upgrades and first purchases.
Unlike WOM-based diffusion, where repurchases do not produce more rec-
ommenders, firms invest in R&D activities to improve product utility, and to
drive upgrades. These activities are influenced (and financed) by overall sales
(adoption and upgrades) and improve utility. Let F(t), S(t) denote the
40 Mark Lett (2014) 25:37–52

cumulative adoption and sales correspondingly; thus, u=u(S(t)). According to

Orbach and Fruchter (2010), adoption increase f(t) equals the multiplication of
the driving force by the remaining market (1-F(t)). Thus, the change in the
cumulative adoption (or the periodical adoption), f(t), becomes

f ðtÞ ¼ aðtÞ  mðuðSðtÞÞÞ  ð1 FðtÞÞ ð2Þ

To compute the repeat purchase due to upgrades in Eq. 1, r(t), we sum all
sales to customers who previously purchased at time tp and upgraded at time t,
r(tp, t). Thus,
X
t 1
rðtÞ ¼ rðk; t Þ ð3Þ
k¼0

The potential market of customers who previously purchased at time tp and may
upgrade at t, α(tp, t), is composed of those who bought at tp and have not upgraded
since then. By definition,
    X
t 1  
a tp ; t ¼ s tp r tp ; t ð4Þ
t¼tp

Actual upgrades, r(tp, t), equal the multiplication of potential upgrades, α(tp, t), by
the probability to upgrade. Assuming  that
 the probability to upgrade is a function of
utility improvement, or P uðtÞ u tp , then
      
r tp ; t ¼ a tp ; t  P uðtÞ u tp ð5Þ
Next, using specifications for utility u, potential market m, and upgrade probability
P as a function of sales, S, we conclude with some interesting marketing implications
regarding the prediction of product life cycles.

2.1 Model specification

For the general model, Eqs. 1–5 described above, we assume the following
specifications. Let the utility provided by the product be a linear function of
sales, i.e.,
uðSÞ ¼ u0 þ bS ð6Þ

In Eq. 6, u0 is the initial utility at launch and b is the product utility

improvement driven by market growth. Let the market potential (in percentage)
be also a linear function of sales, saturating when it reaches its maximum
potential, i.e.,
mðuðSÞÞ ¼ minðm0 þ buðSÞ; 1Þ ð7Þ
In Eq. 7, m0 is the initial potential market for the basic product available at
launch and β is the potential market growth as a function of utility
Mark Lett (2014) 25:37–52 41

improvements. The adoption consideration rate, α(t), is assumed to be con-

stant, or

aðtÞ ¼ a ð8Þ
Russell (1980) argues that an individual has a threshold price for adoption.
Similarly, we assume that a customer will consider an upgrade only if the
difference in utility between the product that is currently owned and a newer
product available in the market is larger than a certain threshold, denoted by
UT. When the utility difference is smaller than UT, customers will compromise
on quality and will not upgrade. As the utility difference increases, the likeli-
hood of repurchase, or the percentage of customers who upgrade at this utility
difference, increases as well. We use a shifted Rayleigh distribution as in Olson
and Choi (1985). This type of distribution is commonly used for lifetime
modeling (see, for example, Lalitha and Mishra 1996; Carrasco et al. 2008;
Javed and Saleem 2012). Under this distribution, the probability of a customer
upgrading becomes

ðuðt−1Þ−uðutp Þ−UT Þ − ðuðtÞ−uðutp Þ−UT Þ

2 2
    
P uðtÞ−u tp ¼ e− 2σ2 −e 2σ2 ; tp < t; uðtÞ−u tp > UT
ð9Þ
Hereafter, we relate our analysis to the parametric model.

3 Dynamic properties of the parametric model

The model developed in the previous section is a nonlinear discrete dynamic

system that depends on seven parameters:u0, b, m0, α, β, σ, and UT We
performed all calculations in double precision, which is far beyond the sensi-
tivity of the pattern to parameters or initial state variations. Considering two
different values for the parameter set {u0, b, m0, α, β} and varying σ and UT,
we generate seven product life cycle examples.1 These examples illustrate
diverse diffusion scenarios and present the evolution of adoption, upgrades,
and total sales over time. Following these examples, we observe that small
variations in the above parameters alter not only the altitude of the sales curve
or its lifetime but also its pattern.2
In order for upgrades to start, the utility improvement, at least for some of the
adopters, must surpass, see Eq. 9, the upgrade threshold UT, based on adoption only.
The reason is that at the beginning of the product life cycle, there are no upgrades and
sales stem from adoption only, S(t)=F(t). The utility improvement, even relative to
the lowest utility u(t=0)=u0, and since adoption F(t) has a maximal limit of 1.0, is

1
The examples are available from the authors upon request.
2
Note that, unlike Chandrasekaran and Tellis (2011), we model the entire product life cycle and are not
limited to forecasting only the edges of the “irregular” periods.
42 Mark Lett (2014) 25:37–52

according to Eq. 6, u(t)−u(tp)<u(t)−u0 =S(t)×b=F(t)×b<b. This means that in order

to fulfill the upgrade condition in Eq. 9, the threshold UT must meet the condition
UT <u(t)−u(tp)<b. When UT >b, there will never be upgrades and sales stem only
from adoption. Sales can be calculated by

f ðtÞ ¼ ða  ðm0 þ b  u0 Þ þ abbFðtÞÞ  ð1 FðtÞÞ

0 1
B C
¼ @a  ðm0 þ b  u0 Þ þ abb FðtÞA  ð1 FðtÞÞ ð10Þ
|fflfflfflfflfflfflfflfflfflfflfflfflfflffl{zfflfflfflfflfflfflfflfflfflfflfflfflfflffl} |{z}
p q

which is equivalent to the Bass (1969)3 model, with p ¼ aðm0 þ bu0 Þ and q=aβb.
When utility stagnates, it is equivalent to the Bass model with q=0. This can be
summarized as follows.

Result 1 When UT >b, there will be no upgrades and our model is mathemat-
ically equivalent to the Bass (1969) model.

While the set of seven parameters {u0, b, m0, α, β, UT, σ} is more intuitive
and captures the influence between the model’s variables, mathematically it is
equivalent to a normalized model with only four parameters that embeds all the
relations relevant for the sales curve pattern. We can maintain the same
repurchase pattern if we scale up b while scaling UT, by the same factor,
and we can keep the exact same adoption pattern if we scale up u0 and scale
down β by the same factor as b. This means that we can normalize b to 1 and
reduce the parameters set size. We can take this approach further and embed m0
values into the u0 component and scale α to 1 and compensate that by scaling
β
n by 1/α. Ao summary of the conversion, which reduces the parameters set to
u0 ; e
e e T; σ
b; U e , is presented in Table 1 and “Result 2.” Hereafter, we will refer
only to the reduced (normalized) model. We refer to e u0 , eb as adoption
parameters since they determine sales pattern also at times, see Eq. 10, when
there are no upgrades. They do influence upgrades indirectly by determining
when upgrades start and how utility is distributed among adopters at that time.
We refer to U eT , σ
e as repurchase parameters since they determine, see Eq. 9,
the upgrade likelihood at each time and do not influence adoption.

Result 2 The parameters set size of our model can be reduced to four,
maintaining the exact same pattern along the entire product life cycle. The
conversion of the parameters is shown in Table 1.

3.1 Stability analysis

The diverse behavior and the nature of the product life cycle patterns can be
categorized into three domains: (1) sales that grow, and sometimes maintain high

3
Adoption is measured as a portion of the maximal potential market (at maximum utility).
Mark Lett (2014) 25:37–52 43

Table 1 Parameter
Original parameters Scale up/down Normalized parameter
transformations
α ↑ 1
β ↓ e
b ¼abb
u0 ↑ e
u0 ¼ u0 =b þ m0 =ðb  bÞ
m0 ↑ 0
b ↑ 1
UT ↑ e T ¼ UT =b
U
σ ↑ σ
e ¼ σ=b

volumes for some time, but have a finite lifetime and eventually, in the long term,4
decline asymptotically to zero as in the Bass (1969) model; (2) sales that after a
transition time converge to a stable constant, nonzero level; (3) sales that after a
transition time do not converge to a single value but keep oscillating between several
levels at high frequency or low frequency. We mapped the influence of the repurchase
parameters U eT , σe on the patterns categories, and following Morrison (1969), we
outlined the oscillations area boundaries using linear discriminant analysis.  A2D
illustration, which summarizes 2000 patterns of varying U eT , σe , and when e u0 ; e
b ¼
ð0:014131; 0:4652Þ , is presented in Fig. 1.  
The oscillations domain resides in a narrow region on the U e T; σ
e plain, between
the upper right triangular region, where sales have a finite lifetime, and the lower left
triangular region, where sales converge to a stable single level. We calculated the
discriminant quality measure, proposed by Morrison (1969), which measures the
probability of predicting the correct domain based on the boundaries. Its value is
0.95988 when using the following linear separators:
e T þ 51:891e
line 1 : 17:208U σ 10:918 ¼ 0; e T þ 33:241e
line 2 : 5:918 U σ 5:690 ¼ 0:

We ran several other sets of 2,000 product life cycles each. The results are similar
to those presented in Fig. 1 also for different values of e u0 ; e
b .
When firms plan to maintain high sales based on upgrades, they need the values of
UeT , σ
e to be in the lower left region of the map in Fig. 1. Firms can reduce the values
e
UT , σ e by increasing the rate of product improvement given market propensity to
upgrade.
The connection between low upgrade threshold U e T values and strong sales that
stem from upgrades is intuitive. When the improvement required by customers to
upgrade is small, or when firms respond to sales by rapidly improving the product,
there will be more upgrades. The same is true of the connection between high U e T and
weak sales. The influence of normalized population heterogeneity, σ e , may exert an
effect in two ways. First, when σ e is high, a significant share of the market has a larger
threshold than Ue T . This is the reason for the negative slope of the boundary lines in
Fig. 1. Second, high σ e performs averaging over a broader range, see Eqs. 3–5, and
thus damps the oscillations. The oscillations are driven by the recursive nature of

4
We calculated sales for up to 100 periods while the adoption peak time was at 20.
44 Mark Lett (2014) 25:37–52

Fig. 1 Oscillations regions mapping

upgrades, see Eqs. 4 and 5, which cause the pattern to replicate past behavior, to some
degree. When the replication cycle is long enough, due to high U e T , and averaging
window is narrow, due to low σ e , and the replicated region contains a peak, peaks will
be replicated and generate oscillations. We observe in Fig. 1 that the range of
oscillations shrinks quickly as e
σ increases. This can be summarized as follows.

 3 Patterns
Result  domains (finite, stable constant, and oscillating) form regions in the
2D U e T; σ
e map that can be distinguished using discriminant analysis. Such a map
is presented in Fig. 1.

The dependency of the sales pattern and how it is influenced by varying

either U e T or σ e over the ranges described in Fig. 1 is demonstrated in Figs. 2
and 3. In these figures, the amplitude is influenced by the difference between
adoption peak time and upgrades start time (see Fig. 2), which is influenced
strongly by U e T and also by σ e (see  Fig. 3), which represent the averaging
aspect. The other parameters e u0 ; e
b also influence upgrades start time and
adoption curve until upgrades.  
We chose an arbitrary focal point of U e T; σ
e ¼ð0:75;0:015625Þ , marked in Fig. 1
by crossing arrows. We vary either U e T or σ u0 ; e
e , while e b ¼ ð0:014131; 0:4652Þ , and
present how the sales patterns are influenced by the boundaries in Fig. 1. We see in Fig. 2
that for low Ue T values, U
e T 2 ð0:2; 0:546Þ sales converge to a stable nonzero level. For
higher U e T values, Ue T 2 ð0:546; 0:9Þ sales keep oscillating at various frequencies.
Increasing U e T values further causes the pattern to decline to zero after a while. We
observe that when upgrades start, when utility increase uðtÞ u0 surpasses U e T , before
Mark Lett (2014) 25:37–52 45

Fig. 2 Upgrade threshold influence

adoption peak time, sales tend to converge to a stable nonzero level. When upgrades
start some time after the adoption peak,5 sales oscillate. When sales start further beyond
a certain point, sales eventually decline to zero. A similar effect is observed in Fig. 3 for
σ
e . For σ
e 2 ð0:01; 0:03Þ , sales keep oscillating at various frequencies while for higher
values σe 2 ð0:04; 0:07Þ , sales may oscillate for a short time, but finally converge to
zero. This can be summarized as follows.

Result 4 Upgrades starting point, determined by Ue T , and upgrades distribution, σ

e,
determine not only the pattern domain but also oscillations amplitude and frequency
where applicable (when sales do oscillate).

While in general increasing U e T and reducing σ e tends to increase the amplitude

and frequency, the actual influence of these values is more complex and depends on
the balance between all four parameters. The diverse behavior and the nature of the
patterns presented in Figs. 2 and 3 appear to be similar to nonlinear chaotic dynamic
systems. The behavior of such systems was described by May (1976), Collet and
Eckerman (1980), Strogatz (1994), and Lin and Chen (2008), who explored it using a
numerical stability analysis and presented the results in bifurcation diagrams.
n o
Bifurcation diagrams that summarize the dependency between the model's parameters
u0 ; e
e e T; σ
b; U e and dynamic properties, such as amplitude and frequency, calculated
using Fourier transform, in the long term,6 are presented in Fig. 4. In Fig. 4, we vary
all four parameters, not only two, as in  Fig. 1. In contrast to Fig. 1, which presents a
2D map where both parameters U e T; σ
e vary, in Fig. 4, we vary a single parameter
for each case.  
The focal point, U e T; σ u0 ; e
e; e b ¼ ð0:75; 0:015625; 0:014131; 0:4652Þ , marked in
Fig. 1, serves as a pivot and each bifurcation diagram pair presents how the patterns’
dynamics changes when one of the four parameters varies while the other three
remain constant.
The first row in Fig. 4 presents the influence of U e T . For low values, the sales levels
converge to a single level of almost 1, which means that when the upgrade threshold is
low, or firms improve their product rapidly, customers tend to upgrade at every period.
For a certain value of U e T , we see a split where the sales levels in the long term toggle
between two values. The gap between the levels is the amplitude of the oscillations.

5
The threshold is not precisely the peak, which match utility increase of 0:5  ð1 u0 Þ , but a short time,
e
observed numerically, after the peak.
6
We calculated the sales for 100 periods.
46 Mark Lett (2014) 25:37–52

Fig. 3 Population heterogeneity influence

When we increase U e T further, we can see that the curve converges and, for U e T values
above 0.95, decreases to zero, which represents a case where the product life cycle is
finite. The corresponding frequency bifurcation diagram presents the oscillations fre-
quency. When we have a single level, frequency is zero, when we have two levels there
is a single frequency, and when we have four levels there are two frequencies.
The second row in Fig. 4 presents the influence of σ e . At low σ e values, sales
oscillate between two levels. When we increase σ e values, the amplitude changes and
at a certain value splits to four levels. When σ e values are increased further, the
periodic sales level in the long term declines to zero. The results in the first two rows
of Fig. 4 match the results described in Fig. 1. The third row in Fig. 4 presents the
influence of e u0 . The adoption component of our normalized model, see Eq. 10 and
Table 1, is equivalent to the Bass (1969) model when e b ¼ q; e u0 ¼ p=q . The ranges of
u0 and e
e b are chosen to match valid corresponding Bass (1969) model proper
parameter values and to avoid sampling values, assumed to be at steady state, at
transitions. There are oscillations along the entire range. The fourth row in Fig. 4
presents the influence of e b over a wide range. Like e u0 , there are oscillations along
the entire range, but amplitude and frequency varies with the value of e b . While the
dependency between frequency and e u0 or e b can be mapped and ranges can be
distinguished, the amplitude is very sensitive to small changes in e u0 or e
b . This can be
summarized as follows.
n o
Result 5 Mapping the dependency of frequency on e u0 ; e e T; σ
b; U e parameters forms
distinguishable ranges for all parameters, while amplitude demonstrates a high
sensitivity even to small changes of any parameter. Examples are presented in Fig. 4.

In summary, our model can describe and explain complex sales patterns, such as
revival, long-lasting oscillations, harmonies, long maturity with fluctuations and
many transients (see Figs. 2 and 3). Such a rich set of behaviors can be modeled
using only four parameters. The diversity in frequency and amplitude (see Figs. 2 and
3) demonstrates that the oscillations, which are maintained for a long time, are a result
not of overcompensation caused by the discrete time but of the nature of the model.
The model forecasts sales in percentage (market share). For calculating sales in units,
we need an additional parameter for market size. A parametric analysis reveals that
some characteristics, such as pattern domain and frequency, can be distinguished by
clear boundaries in the parameters space, while other characteristics, such as ampli-
tude, demonstrate a high parametric sensitivity.
Mark Lett (2014) 25:37–52 47

Sales Levels Frequency

Fig. 4 Amplitude and frequency bifurcation diagrams

4 Our model vs. actual data

In this section, we estimate the parametric values and match our model to
real-world cases with complex sales patterns: the worldwide PC market in
1982–2005 and UK fax market in 1987–1998. We chose these cases because
actual sales are not smooth, or regular, as expected by most diffusion models,
but seem erratic or irregular. We focused on the transition time rather than the
long-term complex behavior, since we need to benchmark our model against
other models. We validate our model with actual data using root mean square
error (RMSE) and root relative mean square error (RRMSE) criteria, and also,
similarly to Morrison (1969), by counting how many estimated values are
within of the actual values. We benchmark our results against two repeat
purchase models of Norton and Bass (1987)) and Olson and Choi (1985)).
48 Mark Lett (2014) 25:37–52

The actual data used are related to the worldwide desktop PC and UK fax
machine markets.

4.1 The Worldwide desktop market

We use secondary data based on reports of the International Data Corp (see
http://jeremyreimer.com/postman/node/329). The desktop PC market is charac-
terized by upgrades where customers replace their still-functioning PC due to
the availability of more advanced models in the market. Some customers make
the upgrade decision, as modeled by our model, based on the difference in
utility between already owned and available products. Others upgrade their PC
periodically, and their purchases demonstrate a wear-out-like replacement pat-
tern. The parameters estimation and forecast criteria results are summarized in
Table 2. The diffusion curve is shown in Fig. 5.
According RMSE criteria, the Olson and Choi (1985)) approximation per-
forms best, and our model is in second place; whereas according to RRMSE
criteria, our model makes the best fit and the Olson and Choi (1985)) is in
second place. According to both criteria, the Norton and Bass (1987)) model
is less accurate. While the Norton and Bass (1987)) and our model capture the
complexity of the market behavior, the Olson and Choi (1985)) filters it out.
In terms of the degree of parsimony, the Olson and Choi (1985)) model
requires four parameters, our model requires five parameters, and the Norton
and Bass (1987)) model requires 11 parameters.
In Table 2, the m parameter of the Olson and Choi (1985)) approximates the actual
installed base (see internetworldstats.com). The sum of mi parameters of the Norton
and Bass (1987)), which represents the overall market, overestimates the real data by
a factor of three. The upgrades model m parameter underestimates the market,
probably because old PCs are often still in use after the customer upgrades to a
new desktop.
The similarity between the results of the Olson and Choi (1985)) and our model
may be an indication that, although the decision concerning desktop replacement is

Table 2 Diffusion parameters for the Worldwide PC market

Model Olson and Choi Norton and Bass (1987)) Upgrades

(1985) (our model)

Number of 4 11 5
parameters

Estimated p ¼ 0:01  p2 ¼ 0:01 p3 ¼ 0:01 e
u0 ¼ 0:05725
p1 ¼ 0:001  e
parameters q ¼ 0:03  q1 ¼ 0:401 q3 ¼ 0:27 b ¼ 0:23959
q1 ¼ 0:9  e T ¼ 0:43014
m ¼ 1; 048; 309 m2 ¼ 930; 515 m3 ¼ 1; 294; 705 U
m1 ¼ 80; 000 
σ¼4 t2 ¼ 5 t3 ¼ 9 σ
e ¼ 0:0357
m ¼ 298; 443
RMSE 9,947 16,836 11,348
RRMSE 0.17686 0.43834 0.16232
P(±20 %) 0.92857 0.642857 0.85771
Mark Lett (2014) 25:37–52 49

Fig. 5 Worldwide PC market 1982–2005

driven by upgrades, and not by physical wear-out, it is influenced also by financial

considerations and time between purchases.

4.2 The FAX Machine Market

This case examines the fax machine diffusion in the UK market. The actual sales (in
1,000 units) data are bi-annual, from 1987 to 1997, based on Javier Pozas’ presentation.
They show that there is a small chasm in 1990 and another one in 1995 and a short peak
in 1996. The parameters estimation and forecast criteria results are summarized in
Table 3. The results are shown in Fig. 6. For the fax case, according to both RMSE
and RRMSE criteria, our model makes the best fit, the Olson and Choi (1985)) is in
second place, and the Norton and Bass (1987)) in third. Following Table 3, the m
parameter of the Olson and Choi (1985)) model is close to the actual installed base (see
http://www.nationmaster.com/graph/med_fax_mac-media-fax-machines). The sum of
mi parameters of the Norton and Bass (1987)), which represents the overall market,
overestimates the real data by a factor of two. The upgrades model m parameter
underestimates the market by a factor of 50 %. The q parameter of the Olson and
Choi (1985)) is very small and seems problematic.
The Olson and Choi (1985)) model filters out the complex market behavior,
whereas both Norton and Bass (1987)) and our model capture more of the
complexity of the market behavior. Whereas the Norton and Bass (1987))
predicts a fast drop in sales in a short time, our model predicts a slow decline
in sales.

5 Summary and future directions

In this paper, we proposed a new model that can explain complex behavior, such as:
(1) sales curves that decline and revive several times and (2) sales curves that
converge to a nonzero constant level or oscillate between two stable levels, in a
single frequency or with several harmonies. The diverse behaviors produced by the
50 Mark Lett (2014) 25:37–52

Table 3 Diffusion parameters for the UK fax market

Model Olson and Choi (1985) Norton and Bass (1987) Upgrades (our model)

Number of 4 11 5
parameters

Estimated p ¼ 0:03442  p ¼ 0:03 p3 ¼ 0:06 e
u0 ¼ 0:73962
p1 ¼ 0:06  2 e
parameters q ¼ 0:00264 q ¼ 0:3 q3 ¼ 0:3 b ¼ 0:23924
q1 ¼ 0:3  1 e T ¼ 0:55041
m ¼ 15; 023 m ¼ 14; 993 m3 ¼ 10; 113 U
m1 ¼ 6; 622  2
σ ¼ 3:8995 t2 ¼ 6 t 3 ¼ 16 σ
e ¼ 0:06952
m ¼ 7; 999
RMSE 121 125 107
RRMSE 0.10441 0.10643 0.10148
P(±20 %) 0.904762 0.857143 0.952381

model can match almost any given sales curve. The origin of the model is a utility-
based adoption model, and it was developed to incorporate also repurchase due to
upgrades. Repeat purchases due to upgrades are caused not by objective degradation
in a product’s performance but by a subjective perceived degradation relative to
improved products that are launched to the market. While several studies have
addressed repeat purchase issues, they mostly refer to repeat purchase due to wear-
out. Existing models that mention upgrades assume that repeat purchase is a function
of a product’s lifetime and not of utility improvement. While wear-out is a function of
time, since it represents a product’s lifespan, the motivation to upgrade is different.
Upgrade is driven by product improvements, which are not necessarily constant in
time. Our model presents a unique method that explicitly links upgrades to utility
improvement, and can forecast upgrades even when the utility improvement rate
varies along the product’s life cycle. Moreover, our model can explain phenomena
such as varying time to repurchase, mentioned by Gordon (2006). We showed that
complex market behavior can be described by a parsimonious model using only five
parameters. In this paper, we referred to utility as a measure that captures all
attributes’ benefits and does not detail specific features. We assumed that the industry

Fig. 6 UK FAX market 1987–1998

Mark Lett (2014) 25:37–52 51

is aware of market developments and changing customer requirements and focused

on features that increase the customer’s utility.
Future research may deepen the analytics and find formal, rather than numeric,
domain transition boundaries. It may explore the basic model behavior with different,
not necessarily linear, functional dependencies, seasonal, rather than constant, adop-
tion consideration, and other distributions, such as Gamma, Weibull, or truncated
normal, which may fit some real product life cycle cases better. The model may be
extended to incorporate both upgrades and wear-out replacements simultaneously, to
incorporate specific attributes, rather than referring to utility, or to analyze a market
with several segments. Future empiric research can implement the proposed method
on additional real cases or use this method for real forecasting, and not only fitting to
historic data, of upgrades.

Acknowledgments The authors thank the editor and anonymous reviewers for the very helpful and
constructive comments that lead to a significantly improved manuscript. In addition, the authors thank
Oded Gottlieb for his very helpful advice regarding the numerical analysis of cycles and chaos in nonlinear
dynamic systems.

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