When giving some away makes sense to jump-start the diffusion process

This paper uses an analytical model to examine when it makes sense to provide incentives to innovators to adopt a new product, which allows for separate segments of innovators and imitators, each of which follows a Bass-type diffusion process.

Abstract

This paper uses an analytical model to examine when it makes sense to
\nprovide incentives to innovators to adopt a new product. The model allows for separate
\nsegments of innovators and imitators, each of which follows a Bass-type diffusion
\nprocess. Interestingly “seeding” the market is optimal for a limited range of situations
\nand these do not appear to include those where there is a downturn in sales (chasm)
\nas sales move from the first to the second segment.
\nResearch has frequently identified different segments of adopters of new products.
\nCategorizations include innovators vs imitators (Bass, 1969; Rogers, 1995; Mahahan et
\nal., 1990; Im et al., 2003), technophiles vs “normal” people, and business vs consumer
\nusers. Further, considerable effort has gone into studying the influence of members of
\nthe first group on the second.
\nThis paper focuses on when, if ever, it makes sense for a manufacture of a new
\nproduct to “seed” the market by subsidizing a few early adopters to speed the adoption
\nprocess. The paper builds on earlier work by Kalish and Lilien (1983) which focused
\non the impact of widely available government subsidies on the adoption of socially
\ndesirable innovations (i.e. alternative energy sources) as well as the work of Jain et al.
\n(1995). Unlike that work, we concentrate on providing subsidies (here free goods) to
\nselective individuals in the context of a model which allows for separate segments of
\ninnovators and imitators and nests the standard Bass (1969) model.