When giving some away makes sense to jump-start the diffusion process

This paper uses an analytical model to examine when it makes sense to provide incentives to innovators to adopt a new product. The model allows for separate segments of innovators and imitators, each of which follows a Bass-type diffusion process. Interestingly “seeding” the market is optimal for a limited range of situations and these do not appear to include those where there is a downturn in sales (chasm) as sales move from the first to the second segment. Research has frequently identified different segments of adopters of new products. Categorizations include innovators vs imitators (Bass, 1969; Rogers, 1995; Mahahan et al., 1990; Im et al., 2003), technophiles vs “normal” people, and business vs consumer users. Further, considerable effort has gone into studying the influence of members of the first group on the second. This paper focuses on when, if ever, it makes sense for a manufacture of a new product to “seed” the market by subsidizing a few early adopters to speed the adoption process. The paper builds on earlier work by Kalish and Lilien (1983) which focused on the impact of widely available government subsidies on the adoption of socially desirable innovations (i.e. alternative energy sources) as well as the work of Jain et al. (1995). Unlike that work, we concentrate on providing subsidies (here free goods) to selective individuals in the context of a model which allows for separate segments of innovators and imitators and nests the standard Bass (1969) model. D. R. Lehmann ( ) Columbia University Graduate School of Business, 3022 Broadway, Uris Hall 507, New York, NY 10027 e-mail: [email protected] M. Esteban-Bravo Universidad Carlos III de Madrid, C/ Mdrid, 126, 28903 Getafe Madrid Spain e-mail: [email protected]