Beyond Diffusion: An Affordability Model of the Growth of New Consumer Durables

Abstract

A firm's ability to compete in new product markets is vital to its profitability and long-term survival. Therefore, it is important to understand the development and growth of these markets. Following a pioneering study by Bass (1969), diffusion models have traditionally provided this understanding in marketing. The great appeal of the Bass model is that it is a simple one that fits the data very well and provides parameters that have an intuitive behavioural interpretation. The model suffers from three well-known limitations: (1) it does not include marketing variables that could infuence new product diffusion and sales; (2) the model's parameters are unstable; and (3) the model's forecasts are inaccurate before the sales peak and especially prior to the point of inflection. Subsequent research has made progress especially in extending the Bass model to include marketing variables. However, the extensions have come at the cost of simplicity: the new models are far more complex than the simple Bass model. We propose an alternate simple model of new product growth for consumer durables, based on the concept of affordability rather than on diffusion. We compare this model with the diffusion model in terms of fit, stability and validity of parameters, and forecasting ability. The alternate model is a little inferior to the diffusion model in fit, but superior in terms of the stability and validity of parameters and forecasting ability. We discuss the limitations and implications of our model.

Keywords: diffusion of innovations, new products, forecasting