Selling Innovative Products to Anxious Consumers

Abstract

When deciding whether to adopt an innovative product, consumers often experience different levels of anxiety that prompt them to resist purchase. In some cases, consumers’ anxiety is mitigated by “validation” through externality (e.g., the number of early adopters). To reduce consumers’ anxiety, firms can also invest in “familiarization” through promotion (e.g., free trials). In this chapter, we conceptualize an innovative product as a product that engenders anxiety, and present a model that employs a consumer utility model focusing on the psychological dimension. We examine the firm’s profit-maximizing promotion and pricing decisions when selling to forward-looking consumers in the presence of externality. Our equilibrium analysis reveals that, unlike the conventional wisdom for promoting new version of an existing product, for anxiety-inducing innovations with externality, accelerating the speed of adoption through promotion can actually be detrimental to the firm.