An innovation diffusion model for consumer durables with three parameters

Abstract

Strategic innovation diffusion converts newly created knowledge into increasing a firm’s value primarily through innovative product offerings. In this paper, we present a time-based adoption pattern with pricing and promotional expenditure as a three-dimensional innovation diffusion model (3D-IDM). In our proposed 3D-IDM, we assume that value of the product plays a crucial role of being the major driver of diffusion, and is classified into the following three main factors: (1) continuation time of the product in the market – representing goodwill of the product; (2) price of the product – indicating consumers’ buying behaviour; and (3) marketing efforts of the firm. A special form of the Cobb–Douglas production function is used to design the three-dimensional framework. An empirical study is performed on number of consumer-durable sales data to validate and compare the proposed model. Various performance measures are treated uniquely using the Mahalanobis distance-based approach (DBA) to determine the relative strength of each model.

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