Chapter 6: The Individual and the Diffusion of Innovations

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For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing. Chapter 6 Slide: 2. LEARNING OBJECTIVES(1):. Define an innovation.Discuss how to speed the acceptance of an innovation.Outline how the individual adoption process works. Explain what a product lifecycle is and how this concept relates to new and older technologies..
Chapter 6: The Individual and the Diffusion of Innovation

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1. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 1 Chapter 6: The Individual and the Diffusion of Innovations

2. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 2 LEARNING OBJECTIVES(1): Define an innovation. Discuss how to speed the acceptance of an innovation. Outline how the individual adoption process works. Explain what a product lifecycle is and how this concept relates to new and older technologies.

3. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 3 LEARNING OBJECTIVES(2): Describe how online communities are targeting individuals and what it takes to make a successful online community. Discuss why some cultures may be slow in accepting technological change and the associated implications. Explain how innovations diffuse in a business and what role change agents play in that process.

4. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 4 Vignette: Getting the Message Across Thinking Strategically Determine why the telephone was not more rapidly accepted. Explain why the telephone has grown and the telegraph has declined. Speculate on whether the telephone will ever decline in use, as has the telegraph. Consider how the telephone has evolved and speculate on how the telephone may be different in 10 years.

5. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 5 Lifecycles of the Telegraph and Telephone

6. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 6 DIFFUSION and INNOVATION THEORY Explains how innovations are adopted by using the diffusions of innovations framework. Provide insight into how and why the Web is becoming a tool for communication and commerce and how rapidly it will grow. Outlines how newer technologies can be designed to increase the speed of adoption. Aids in designing new products to reach specific target markets and are helping to shape new communities. Helps explain how new ideas are introduced into a firm to foster change and transform businesses.

7. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 7 Gatignon and Robertson?s Model The concept of an innovation How new products are accepted The adoption process The personal influence process and opinion leadership The role of the innovator How new ideas are spread inside of organizations. The role of the social system on diffusion and diffusion on a social system. The role of marketers as change agents The role of competitive actions.

8. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 8 The Diffusion of Innovations Model

9. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 9 World Wide Web Example: Innovation: Graphical interface speed acceptance of the technology. Innovators: prior to 1994 the Internet existed in relative obscurity on college and university campuses, students become innovators in the use of the Web. Personal Influence: The press aided in the marketing process by heavily promoting this new technology and its uses. Marketing Efforts: Netscape and Microsoft spurred growth by giving away their browsers and promoting the advantages of the Web as a communication medium.

10. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 10 Growth of the Internet and World Wide Web

11. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 11 The Nature Of The Innovation Characterized on two dimensions: How much the user must change behavior in order to use the innovation How new the technology is to the user Discontinuous innovations: require high levels of behavioral change on the part of the user. Continuous innovations: often variations of existing products. Past experience with similar products may not require major behavioral change by the user. Dynamically continuous innovations: exist between these two extremes.

12. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 12 Continuum of Perceived Product Newness

13. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 13 Case 6.1: Surfing the Net (1) Thinking Strategically Consider the World Wide Web when it was first introduced, was it a discontinuous innovation, a dynamically continuous innovation, or a continuous innovation? Determine if your answer will differ for different market segments. Decide if an individual?s past experience with computers and technology may have required less behavioral change and technology learning when accepting PC based Web browsing. Consider what new interfaces like Web TV means for the future growth of the Internet and for those who do not own or use PCs.

14. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 14 Factors That Can Speed an Innovation's Acceptance Relative Advantage: Offer greater utility. Compatibility: Be compatible with the market's lifestyle. Complexity: The less perceived complexity of an innovation, the faster its acceptance Trialability: The easier it is for the market to experience the innovation and receive the benefits the more quickly it will be accepted. Observability: The easier it is for the market to see others receive benefits by using the innovation, the more quickly it will be accepted.

15. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 15

16. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 16

17. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 17 The Killer Application The killer app. (application) is the software product that entices a user to adopt a larger technology. Spreadsheets were the killer apps for PCs. Email is the killer app for the Internet.

18. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 18 Case 6.1: The Rise of the Killer App. Thinking Strategically Consider why individuals may be shifting from postal letters to email. Determine what utility e-mail offers over snail mail. If e-mail is the current killer app. for the Internet, determine what other technologies would be adopted after the individual?s use of e-mail. Speculate on whether or not instant messaging will be the next killer application. Consider what technologies would be threatened by the use of instant messaging.

19. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 19 Compatibility and Complexity Interface design links the user to the technology and can help increase the rate of adoption. An ideal interface does not require any behavioral change on the part of the user. Metaphors can make it is easier to access information when technology is related to ?real-life? concepts and experience. ?Surfing the net? is a metaphors allowing one to understand a new idea by relating it to previously understood concepts.

20. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 20 Mental Model A mental model is a set of relationships that keep in an individual?s mind used to understand how the world, or a piece of it, operates. As individuals gain experience with Web sites, they develop mental models of how to navigate the site. http://www.amazon.com

21. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 21 Hyperbolic Tree Hyperbolic tree browsing allows an individual to see a topic of interest in the middle of a search area with associated branches, like the spokes of a wheel, to linked data. A hyperbolic tree allows for visually navigating hierarchies of hundreds or thousands of objects. Each level of the hierarchical structure is linked to other subcategories. www.inxight.com

22. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 22 Download Time Download time is the amount of time that a Web page takes to load and display on a computer. Up to one third of individuals will leave Web sites if the average download time is longer than eight seconds. Could result in a potential e-commerce lose of up to $4.35 billion a year.

23. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 23 Trialability and Observability Trial and observation lowers the risk of adopting a new innovation. Concerns that individuals have toward using the Internet for commerce include (in order of importance): security (fear of being robbed by hackers), lack of selection, can't judge the quality of the merchandise (can't touch), privacy issues.

24. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 24 Table 6.2: Shifting Online Influenced Purchasing

25. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 25 Lowering Perceived Risks Security is the primary concern (perception can be greater than reality). It can take 50,000 CPUs working 39 days to break a 59-bit encryption code. Most companies use higher than 59-bits making them even more secure. Free products entice customers: Web browsers, information services, free e-mail.

26. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 26 Incentives Incentives entice individuals to purchase over the Internet. Earn points or credit based upon the number of purchases that one undertakes. Redeemable for gift certificates, frequent-flier miles, or cash. Www.cybergold.com

27. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 27 The Individual Adoption Process The individual adoption curve indicates how individuals react to innovations over time. The adoption process places adopters into categories and explores how the earlier adopters influence later adopters. This information is used to segment markets, design promotional campaigns, and can be used to develop e-business strategies.

28. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 28 The Adoption Curve

29. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 29 Innovators Innovators are the first to adopt. Personal characteristics: higher income, higher educational levels, younger, more socially integrated, and have a higher risk tolerance.

30. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 30 Innovators

31. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 31 Personal Influence Process Opinion leaders communicate their experience. The early adopter communicates to the early majority. This process continues on down through the later adopting categories. E-businesses companies take advantage of this word-of-mouth system to attract new customers by engaging in viral marketing. Viral marketing occurs when a customer promotes to others through their use of a product or service such as a Web site or e-mail. http://www.hotmail.com

32. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 32 Viral marketing Viral marketing occurs when a customer promotes a something through their use of a product or service such as a Web site or e-mail. Hotmail: http://www.hotmail.com

33. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 33 Non-Adopters Non-adopters never accept the innovation. This could be due to: lack of access, lack of interest, disdain for technology (Luddite) Luddites were Scottish weavers who destroyed automated weaving machines in an attempt to keep technology out of their industry.

34. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 34 The Product Life Cycle Represents the cumulative adoption of an innovation into a society over time. The product life cycle is metaphor that indicates that products are developed, introduced, grow, mature, and decline. This is generally viewed in terms of a product category, such as the use of the Internet or Web and may not accurately represent a single product. Single products usually enter an industry at some point in the industry lifecycle.

35. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 35 Product Life Cycle

36. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 36 Figure 6.8: Projected Digital Television Lifecycle (U.S)

37. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 37 Online Communities Online communities are created for mutual support or to drive Web users with shared interests, opinions, or activities to a site. Have grown faster than general Internet use. Individuals also stay longer at community sites. Allow for narrow targeting for advertising and e-commerce offers. These sites can also generate support for social causes Yahoo! club section (www.clubs.yahoo.com) Yahoo!?s GeoCities (http://geocities.yahoo.com) XOOM.com (www.xoom.com)

38. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 38 Market Segmentation Process Demographics Gender, age, and income. The results generally indicate that younger males with higher incomes dominate the Internet. Psychographics identifying lifestyle criteria of markets. Generally profiles individuals on their preferred activities, interests, and opinions.

39. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 39 Table 6.4: Industry Psychographic Profiles

40. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 40 Table 6.4: Industry Psychographic Profiles

41. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 41 The Female Market 1994: almost 95% of Web users were male. By 1998 only 61% was male. 1998: first year that females outnumber males in users who were online for less than one year (51.7% female, 48.3% male). 1999: women and men used the Internet in equal numbers. 2002: Researchers are projecting that women will outnumber men online. Reflecting the U.S. mass market where women account for 54 percent of the population, make 70% of traditional retail purchases, and influence 85 of purchase decisions.

42. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 42 Case 6.1: It Takes an iVillage to Start a Trend. Thinking Strategically Decide if iVillage (www.ivillage.com) is too general, or has to broad of an appeal to keep individuals returning to the site. Determine is Women.com (www.women.com) is different from iVillage. Search the Internet to find Web sites that may provide support for those narrower interests that women may have.

43. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 43 Children/Youth Markets The number of U.S. children expected to have Internet access through school or home is expected to increase from 10.5 million in 1998 to over 30.4 million by 2002. World wide, there may be 77 million online under the age of 18. The youth market has lagged behind the adult content market in part due to safety issues. When using online services, adults spend on average one hour online. Children will spend up to three hours online. The children?s market is expected to spend $1.8 billion on E-commerce by 2002.

44. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 44 Niche Markets Niche sites are designed to target a market's narrow activities and interests. Sport sites allow enthusiasts the ability to interact with their favorite sports, leagues, or teams. This includes not only the large national sport teams, but also niche sports as well. The over 50 age market is expected to exceed 115 million in the United States over the next 25 years. This segment is one of the fasting growing Internet users and purchase online at rates higher than other segments.

45. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 45 Seven Principles of Success for Online Communities (1)

46. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 46 Seven Principles of Success for Online Communities (2)

47. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 47 Cross Cultural Acceptance

48. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 48 Hindsight is 20/20 ?This ?telephone? has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.? Western Union internal memo, 1876. "Everything that can be invented has been invented." Charles H. Duell, U.S. commissioner of patents, 1899 ?The wireless music box has no imaginable commercial value. Who would pay for a message sent to nobody in particular?? David Sarnoff?s associates in response to his urgings for investments in the radio in the 1920?s. ?Who the ? wants to hear actors talk?? H. M. Warner, Warner Brothers, 1927.

49. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 49 Intrapreneuring Change agents have entrepreneurial and leadership traits and act within existing firms by building coalitions and managing workers in innovative tasks. Intrapreneurial behavior occurs in existing companies when someone introduces new products or new ideas that allows the company as a whole to grow.

50. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 50 Intrapreneurs: Work well in innovative organizational cultures, are willing to change, and to operate as product or idea champions. Are more likely to have outside contacts and an outward focus bringing ideas into the firm and Have personality traits such as innovativeness, risk taking propensity, and a proactive orientation. Will not necessarily attempt to act on new ideas unless there is a supporting atmosphere inside of the firm. Supportive management and the existence of an organizational culture that allows for the growth of new ideas.

51. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 51 Figure 6.9: Interaction between Innovator and Firm

52. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 52 Communication and Coalition Building The product champion should: Act as the change agent by developing a coalition of key participants who would be the early adopters of the idea. Key participants could be marketing managers, R&D managers, and other key management personnel who would support the idea. Once a coalition is developed, that core group can then expand the idea and gain support throughout the organization. To other managers and decision-makers inside of the organization, spreading the idea throughout the organization.

53. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 53 Developing a Coalition

54. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 54 Spreading the Innovation

55. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 55 ALE 6.1: Innovation Typology Indicate where a target market would perceive a product to be and justify why it would be in that innovative space. Internet Product Watch at http://ipw.internet.com.

56. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 56 ALE 6.2: Finding Your Community There are a number of online communities available on the Internet. Make a list of your favorite activities, interests, and opinions. Choose the top two or three and place those terms into a search engine with the search term ?community?. Explore a number of sites and see if these are designed to meet and hold your interest.

57. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 57 ALE 6.3: Interface Design Use the profile you developed in exercise 6.2 to develop a Web page interface. Draw out the interface using a metaphor that the target market would understand. Justify that design given the experience of the target market. Why would that metaphor be beneficial to the target market?

58. For use with Strategic Electronic Marketing: Managing E-Business Copyright 2000 South-Western College Publishing Chapter 6 Slide: 58 ALE 6.1: Intra-Firm Diffusion Consider yourself to be the designated change agent for introducing an e-business innovation within a firm. Using a business that you work at, or a group of friends or classmates that you interact with: Identify the key participants that you would first contact. Identify the other key players that would be necessary for getting an idea accepted. Determine which e-business innovation you would first like to introduce and which innovations would follow. What arguments that you would use to help convince others to adopt the innovations.


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