Is the Time Ripe? How the Value of Waiting and Incentives Affect Users’ Switching Behaviors for Smart Home Devices

Abstract

Product-related and market-related uncertainties often cause users to defer from switching to new IT devices. There is a value of waiting (VoW) for users because waiting allows them to collect more information. At the same time, many IT switching decisions are increasingly complex due to increased connectivity and the resulting interdependencies between jointly used devices. Therefore, switching decisions for connected devices not only need to consider the new device in isolation, but must also account for the potential benefits from internally or externally connecting the device with other devices. Although crucial for users and providers alike, existing models cannot explain whether and when users switch in such connected environments.

We focus on connected Smart Home Devices (SHDs) and simulate users’ actual switching timing based on a real options model which combines switching and deferral concepts in a context-specific setting. We examine how Smart Home Network (SHN) density influences switching and how providers can use incentives to accelerate switching to foster product diffusion. The findings show an accelerating effect of connectivity and a deferring effect of uncertainty on actual switching timing. We also learn that SHD providers should focus more on immediate than on delayed incentives to promote product diffusion, since the latter can also have undesired effects. Interestingly, external connectivity has almost no influence on decision timing in scenarios with highly dense SHNs, leading to further key implications for SHD providers.

Keywords: Real options approach, Value of waiting, Smart Home Devices, Incentive schemes, Private users

JEL Classification: C63, D81, G11, O33