Understanding Multi-Stage Diffusion Process in Presence of Attrition of Potential Market and Related Pricing Policy

Abstract

In the marketing literature, the concern of researchers for the study of diffusion of innovations is longstanding. The reason being it helps the manager in better understanding and predicting the penetration of innovation among the potential buyers. It has also been proved from past research that there is a definite time delay between the reception of information and the final adoption of a new technological product. Nevertheless, not all well-informed individuals will become eventual adopters because an informed customer will make a purchase decision only if the person is contented with the awareness he/she has received. This article investigates the implications of the informed and uninterested potential adopters using the three-stage structure of the diffusion process. Furthermore, an important aspect that influences the growth and long-term profit for the manufacturer; price has been incorporated into the modeling framework where a pricing policy with maximum expected profit for a new product in a multi-stage diffusion model is proposed. The problem is modeled as an optimal control problem. Further, the formulated model is justified by fitting it on different past sales datasets. The relevance of the developed model is illustrated by a numerical example.