The Impact of Innovation on Product Usage: A Dynamic Model with Progression in Content Consumption
42 Pages Posted: 15 Nov 2011 Last revised: 19 Jun 2014
Date Written: June 24, 2012
We propose a dynamic model to explain product usage in categories characterized by frequent updates and progression of consumer involvement. In our setting, product updates introduce additional content that, to be fully enjoyed, requires increasing consumer experience and involvement with the product. Consumers gain experience through recurrent product usage and content consumption. Examples of such categories include TV series, computer games, mobile apps, books, movies, and educational products. Our modeling approach builds on theory from experiential products to define the product usage utility as a function of intrinsic consumer preferences, satiation, social interactions, and future usage. We use data on consumer participation from the online computer game World of Warcraft to empirically test our model. We show that the success of product updates strongly depends on consumer heterogeneity, on the rate of content consumption, and on the social interaction of consumers. Using our approach, we are able to quantify the value of a product update for the firm. We also provide managerial recommendations to improve scheduling of product innovation and offer insights about consumer segmentation and targeting to increase product usage.
Keywords: Product updates, forward-looking consumers, dynamic model, experiential products
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