A Utility-Based Diffusion Model Applied to the Digital Camera Case

Abstract

We present a model that deals with the challenge of forecasting market acceptance and technology evolution along the product lifecycle, pre-launch. Market growth is driven by product's utility increase due to technology evolution, while firms' product improvements strategies are motivated by market growth and directed by market preferences. The interdependency between utility increase and market growth makes the problem inherently dynamic. To find the dependency of utility increase on market growth, we conduct an industry and technology analysis that follows industry financial policies, innovation orientation, industry players' inter-relations and technologic capabilities. For relating market preferences and purchase intentions to product's utility, we use data collected by a conjoint study. The ability to collect and interpret data about both demand and supply aspects, before the product is introduced, leads to a pre-launch forecasting. The evolution of the cumulative adoption level over time, as a result of the technology evolution, and vice versa, is based on both customer purchase decision processes and firms’ responses. We demonstrate the applicability of the model on the digital camera market.