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Diffusion of innovations

• The acceptance of new products and services.

• The frame work of exploring consumer acceptance of new products is drawn from the area of the research known as the diffusion of innovation.

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Diffusion Process And Adoption Process • Diffusion is a macro process concerned with the

spread of a new product (an innovation) from its source to the consuming public.

• OR • Diffusion is the process by which the acceptance

of an innovation (a new product/service/ideas /practice) is spread by communication (mass media, sales people) to member of social system (a target market) over a period of time.

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• Adoption process is a micro process that focuses on the stages through which an individual consumer passes when deciding to accept or reject a new product.

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• Consumer innovators:

Those who are the first to purchase a new product.• Success or failure of new product introductions

are major dependent upon the identification of product innovators. Examples: the policy of Gillette is that 40% sales must come from product introduce within the past 5 years

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similarly Hewlett Packard's revenues are derived from product

introduced to the market within past 24 months.• Diffusion models for particulars types of goods

and services may change overtime. For Example:

(i) Until 1960s it was assumed that new fashion diffused in a top down or trickle down manner-new styles are first adopted by the upper class elites and gradually diffuse to the middle and lower classes.

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(ii) However since the 1960s the bottom up model has served as the better explanation of the fashions diffusion. New styles developed in lower status groups and are later adopted by higher status groups.

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Innovation

• Firm oriented definitions:

the newness of a product from the perspective of the company producing/making it.

• When the product is “new” to the company it is considered new.

• Whether or not the product is actually new to the market place (i.e competitors or consumers).

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• Product oriented definition: A product oriented approach focuses on the features inherent in the product itself and on the effects these features are likely to have on consumers established usage patterns.• Market oriented definition:

judges the newness of a product in terms of how much exposure consumers have to the new products.

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• Consumer oriented definition:

Any product that a potential consumer judges to be new i.e. newness is based on the consumers perception of the product rather on physical features or market realities

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Level of consumer decision making

• Extensive problem solving:

Consumer have no established criteria for evaluating a product category or specific brands in that category, their decision making efforts can be classified as extensive problems solving.

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• At this level the consumer need a great deal of information to establish a set of criteria on which to judge specific brands and a correspondingly large amount of information concerning each of the brands to be considered.

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Limited problem solving• At this level of problem solving, consumers

already have established the basic criteria of evaluating the product category and the various brands in the category.

• However they have not fully established preferences concerning a select group of brands.

• Their search for additional information is more like “fine tuning”.

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• They must gather additional brand information to discriminate among the various brands.

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Routinized response behavior • Consumer have experience with the product

category and a well established set of criteria with which to evaluate the brands they are considering.

• In some situations they may search for a small amount of additional information.

• In others they simply review what they already know.

• It implies little need for additional information.

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Inert SetInert Set

Brands that a consumer is indifferent toward

because they are perceived as having no particular advantage.

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Figure 16.4 Ad

Suggesting Criteria for

Decision Making

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Consumer Decision Rules

• Compensatory• Noncompensatory

– Conjunctive Decision Rule– Disjunctive Decision Rule– Lexicographic Rule

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Compensatory Compensatory Decision RulesDecision Rules

A type of decision rule in which a

consumer evaluates each brand in terms

of each relevant attribute and then selects the brand with the highest weighted score.

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Non-Non-compensatory compensatory

Decision Decision RulesRules

A type of consumer decision rule by which positive

evaluation of a brand attribute does not compensate for a

negative evaluation of the same brand on

some other attribute.

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Conjunctive Conjunctive Decision Decision

RuleRule

A noncompensatory decision rule in which consumers establish a minimally acceptable cutoff point for each attribute evaluated.

Brands that fall below the cutoff point on any

one attribute are eliminated from further

consideration.

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Disjunctive Disjunctive RuleRule

A noncompensatory decision rule in which consumers establish a minimally acceptable cutoff point for each

relevant product attribute.

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Lexicographic Lexicographic RuleRule

A noncompensatory decision rule -

consumers first rank product attributes in

terms of importance, then compare brands

in terms of the attribute considered

most important.

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Affect Affect Referral Referral Decision Decision

RuleRule

A simplified decision rule by which consumers

make a product choice on the basis of their

previously established overall ratings of the

brands considered, rather than on specific

attributes.

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Table 16.7 Hypothetical Use of Popular Decision Rules in Making a Decision to

Purchase an Ultralight LaptopDECISION RULEDECISION RULE MENTAL STATEMENTMENTAL STATEMENT

Compensatory rule “I selected the computer that came out best when I balanced the good ratings against the bad ratings.”

Conjunctive rule “I selected the computer that had no bad features.”

Disjunctive rule “I picked the computer that excelled in at least one attribute.”

Lexicographic rule “I looked at the feature that was most important to me and chose the computer that ranked highest on that attribute.”

Affect referral rule “I bought the brand with the highest overall rating.”

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Coping with Missing Information

• Delay decision until missing information is obtained

• Ignore missing information and use available information

• Change the decision strategy to one that better accommodates for the missing information

• Infer the missing information

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Types of Purchases

TrialPurchases

Repeat Purchases

Long-TermCommitment

Purchases

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Outcomes of Postpurchase Evaluation

• Actual Performance Matches Expectations– Neutral Feeling

• Actual Performance Exceeds Expectations– Positive Disconfirmation of Expectations

• Performance is Below Expectations– Negative Disconfirmation of Expectations

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Relationship Relationship MarketingMarketing

Marketing aimed at creating strong,

lasting relationships with a core group of customers by making them feel good about the company and by giving them some kind of personal

connection with the business.

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Table 16.14 A Broad-based Relationship Program

HOTELSConrad HotelsForte HotelsForum HotelsHilton Hotels & ResortsHilton International HotelsHoliday Inns

CAR RENTALAvis Rent a CarHertz

AIRLINESCanadian Airlines InternationalCathay Pacific AirlinesHawaiian AirlinesQantas AirwaysKeno AirSingapore AirlinesTWAUS Airways

HOTELS continuedITT Sheraton Hotels, Inns, Resorts

& All-SuitesMarriott Hotels, Resorts and SuitesVista HotelsWyndham Hotels & Resorts

OTHERCitibank AAdvantage Visa or

Master-Card applicationMCI Long-DistanceAmerican AAdvantage Money

Market Fund

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Figure 16.7 A Portrayal of the Characteristics of Relationship

Marketing

•Products/Services•Individualized attention•Continuous information•Price offers•Customer services•Extras and perks, etc.

•Repeat Purchase•Increased Loyalty•Goodwill•Positive word-of-mouth•Lower costs for the firm

Trust and promises

The Firm provides The Customer provides

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Consumers Are Less Loyal - Why?

• Abundance of choice

• Availability of information

• Entitlement

• Commoditization

• Insecurity

• Time scarcity