Modeling the Diffusion of New Durable Goods: Word-of-Mouth Effect Versus Consumer Heterogeneity

Abstract

The spread of new products in a population has been the subject of renewed interest over the past 15 years, stimulated in part by Robinson and Lakhani’s [1975] study on the pricing implications of the Bass diffusion model [1969]. Recent reviews have summarized the main articles in the area (for example, de Palma, Droesbeke, and Lefèvre [1991], Lilien, Kotler, and Moorthy [1992, pp. 461-80], and Mahajan, Muller, and Bass [1990]). However, as Mahajan, Muller, and Bass (p. 11) observed, most reported work has consisted of “refinements and extensions of the Bass diffusion model” without alteration of the basic premise of the diffusion curve, that is, sales as the result of the combination of both independent and imitative buying over time. Essentially, most work has considered adoption time as a deterministic event based upon the traits of consumers, the amount of information available to them, and their utility functions. Consequently, knowledge of those determinants implies a perfect prediction of adoption times.