Abstract
When deciding whether to adopt an innovative product or service, consumers often experience different levels of anxiety (i.e., nervousness) that prompt them to resist purchase (e.g., fear of learning new technologies, disruption of established habits or beliefs). In such cases, consumers’ anxiety is mitigated by “validation” through externality (e.g., the number of early adopters). To reduce consumers’ anxiety, firms can also invest in “familiarization” through promotion (e.g., offering free trials). We conceptualize innovation as a product that engenders anxiety, and present a model that employs a consumer utility model focusing on the psychological dimension. We examine the firm's profit-maximizing promotion and pricing decisions when selling to forward-looking consumers in the presence of externality. Our equilibrium analysis reveals that, unlike the conventional wisdom for promoting new products, for anxiety-inducing innovations with externality, accelerating the speed of adoption through promotion can actually be detrimental to the firm.
| Original language | English |
|---|---|
| Pages (from-to) | 1236-1250 |
| Number of pages | 15 |
| Journal | Production and Operations Management |
| Volume | 27 |
| Issue number | 7 |
| Early online date | 28 Feb 2018 |
| DOIs | |
| Publication status | Published - 11 Jul 2018 |
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Keywords
- consumer anxiety
- externality
- familiarization
- innovation adoption
- new product introduction
ASJC Scopus subject areas
- Management Science and Operations Research
- Industrial and Manufacturing Engineering
- Management of Technology and Innovation
Cite this
Selling innovative products in the presence of externalities. / Huang, Yufei; Gokpinar, Bilal; Tang, Christopher S.; Yoo, Onesun Steve.
In: Production and Operations Management , Vol. 27, No. 7, 11.07.2018, p. 1236-1250.Research output: Contribution to journal › Article
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TY - JOUR
T1 - Selling innovative products in the presence of externalities
AU - Huang, Yufei
AU - Gokpinar, Bilal
AU - Tang, Christopher S.
AU - Yoo, Onesun Steve
PY - 2018/7/11
Y1 - 2018/7/11
N2 - When deciding whether to adopt an innovative product or service, consumers often experience different levels of anxiety (i.e., nervousness) that prompt them to resist purchase (e.g., fear of learning new technologies, disruption of established habits or beliefs). In such cases, consumers’ anxiety is mitigated by “validation” through externality (e.g., the number of early adopters). To reduce consumers’ anxiety, firms can also invest in “familiarization” through promotion (e.g., offering free trials). We conceptualize innovation as a product that engenders anxiety, and present a model that employs a consumer utility model focusing on the psychological dimension. We examine the firm's profit-maximizing promotion and pricing decisions when selling to forward-looking consumers in the presence of externality. Our equilibrium analysis reveals that, unlike the conventional wisdom for promoting new products, for anxiety-inducing innovations with externality, accelerating the speed of adoption through promotion can actually be detrimental to the firm.
AB - When deciding whether to adopt an innovative product or service, consumers often experience different levels of anxiety (i.e., nervousness) that prompt them to resist purchase (e.g., fear of learning new technologies, disruption of established habits or beliefs). In such cases, consumers’ anxiety is mitigated by “validation” through externality (e.g., the number of early adopters). To reduce consumers’ anxiety, firms can also invest in “familiarization” through promotion (e.g., offering free trials). We conceptualize innovation as a product that engenders anxiety, and present a model that employs a consumer utility model focusing on the psychological dimension. We examine the firm's profit-maximizing promotion and pricing decisions when selling to forward-looking consumers in the presence of externality. Our equilibrium analysis reveals that, unlike the conventional wisdom for promoting new products, for anxiety-inducing innovations with externality, accelerating the speed of adoption through promotion can actually be detrimental to the firm.
KW - consumer anxiety
KW - externality
KW - familiarization
KW - innovation adoption
KW - new product introduction
UR - http://www.scopus.com/inward/record.url?scp=85044843457&partnerID=8YFLogxK
U2 - 10.1111/poms.12864
DO - 10.1111/poms.12864
M3 - Article
VL - 27
SP - 1236
EP - 1250
JO - Production and Operations Management
JF - Production and Operations Management
SN - 1059-1478
IS - 7
ER -