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Analysis of New Product Diffusion Using a Four-Segment Trial-Repeat Model

Author

Listed:
  • Minhi Hahn

    (Korea Advanced Institute of Science and Technology)

  • Sehoon Park

    (Hallym University)

  • Lakshman Krishnamurthi

    (Northwestern University)

  • Andris A. Zoltners

    (Northwestern University)

Abstract

A four segment trial-repeat model is developed to model sales of a frequently purchased product in the early stage of the product's life cycle. The model can be calibrated using aggregate data alone. Two versions of the model, one emphasizing the competitive aspect of marketing communications and another emphasizing the informative aspect, are estimated from data on 21 newly launched pharmaceutical products. The model provides valuable diagnostics such as an early estimate of the long-run market share of the new product, a decomposition of total sales (into trial sales due to marketing activities, trial sales due to word-of-mouth, and repeat sales), the changing composition of the trial market and repeat market over time, and the time when the trial market is expected to be saturated. In addition, the effectiveness of the entrant's marketing efforts, word-of-mouth communication, and buyers' trial experience are analyzed with the model. A cross-sectional analysis based on the empirical estimation results of our model reveals interesting insights into product introduction strategies. We find that: 1) the effectiveness of the firms' communication activities on trial is related mainly to product quality attributes and market growth whereas that of word-of-mouth is associated with product class characteristics and market competitiveness, and 2) the effect of product trial on repeat purchases is related mainly to product quality attributes and various market characteristics such as size, growth, competitiveness, and familiarity.

Suggested Citation

  • Minhi Hahn & Sehoon Park & Lakshman Krishnamurthi & Andris A. Zoltners, 1994. "Analysis of New Product Diffusion Using a Four-Segment Trial-Repeat Model," Marketing Science, INFORMS, vol. 13(3), pages 224-247.
  • Handle: RePEc:inm:ormksc:v:13:y:1994:i:3:p:224-247
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    File URL: http://dx.doi.org/10.1287/mksc.13.3.224
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    Cited by:

    1. Raghuram Iyengar & Christophe Van den Bulte & Thomas W. Valente, 2011. "Opinion Leadership and Social Contagion in New Product Diffusion," Marketing Science, INFORMS, vol. 30(2), pages 195-212, 03-04.
    2. Marc Fischer & Peter Leeflang & Peter Verhoef, 2010. "Drivers of peak sales for pharmaceutical brands," Quantitative Marketing and Economics (QME), Springer, vol. 8(4), pages 429-460, December.
    3. repec:eee:joinma:v:28:y:2014:i:1:p:26-42 is not listed on IDEAS
    4. Jongsu Lee & Chul-Yong Lee, 2009. "A Forecasting Model Incorporating Replacement Purchase: Mobile Handsets in South Korea's Market," TEMEP Discussion Papers 200904, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Apr 2009.
    5. Yeong-Wha Sawng & Kazuyuki Motohashi & Gang-Hoon Kim, 2013. "Comparative analysis of innovative diffusion in the high-tech markets of Japan and South Korea: a use–diffusion model approach," Service Business, Springer;Pan-Pacific Business Association, vol. 7(1), pages 143-166, March.
    6. Puneet Manchanda & Dick Wittink & Andrew Ching & Paris Cleanthous & Min Ding & Xiaojing Dong & Peter Leeflang & Sanjog Misra & Natalie Mizik & Sridhar Narayanan & Thomas Steenburgh & Jaap Wieringa & M, 2005. "Understanding Firm, Physician and Consumer Choice Behavior in the Pharmaceutical Industry," Marketing Letters, Springer, vol. 16(3), pages 293-308, December.
    7. repec:eee:ijrema:v:25:y:2008:i:4:p:282-293 is not listed on IDEAS
    8. Kim, Namwoon & Srivastava, Rajendra K. & Han, Jin K., 2001. "Consumer decision-making in a multi-generational choice set context," Journal of Business Research, Elsevier, vol. 53(3), pages 123-136, September.
    9. Ruiz-Conde, Enar & Wieringa, Jaap E. & Leeflang, Peter S.H., 2014. "Competitive diffusion of new prescription drugs: The role of pharmaceutical marketing investment," Technological Forecasting and Social Change, Elsevier, vol. 88(C), pages 49-63.
    10. Huh, Sung-Yoon & Lee, Chul-Yong, 2014. "Diffusion of renewable energy technologies in South Korea on incorporating their competitive interrelationships," Energy Policy, Elsevier, vol. 69(C), pages 248-257.
    11. repec:eee:ijrema:v:27:y:2010:i:2:p:91-106 is not listed on IDEAS
    12. Min Ding & Jehoshua Eliashberg, 2008. "A Dynamic Competitive Forecasting Model Incorporating Dyadic Decision Making," Management Science, INFORMS, vol. 54(4), pages 820-834, April.
    13. repec:eee:ijrema:v:25:y:2008:i:4:p:234-246 is not listed on IDEAS
    14. Richard, Oliver & Van Horn, Larry, 2004. "Persistence in prescriptions of branded drugs," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 523-540, April.
    15. Guo, Xuezhen, 2014. "A novel Bass-type model for product life cycle quantification using aggregate market data," International Journal of Production Economics, Elsevier, vol. 158(C), pages 208-216.
    16. Shin, Jungwoo & Lee, Chul-Yong & Kim, Hongbum, 2016. "Technology and demand forecasting for carbon capture and storage technology in South Korea," Energy Policy, Elsevier, vol. 98(C), pages 1-11.
    17. Desiraju, Ramarao & Nair, Harikesh S. & Chintagunta, Pradeep, 2004. "Diffusion of New Pharmaceutical Drugs in Developing and Developed Nations," Research Papers 1950, Stanford University, Graduate School of Business.
    18. Stefan Stremersch & Aurélie Lemmens, 2009. "Sales Growth of New Pharmaceuticals Across the Globe: The Role of Regulatory Regimes," Marketing Science, INFORMS, vol. 28(4), pages 690-708, 07-08.
    19. repec:eee:joinma:v:24:y:2010:i:1:p:1-13 is not listed on IDEAS
    20. Islam, Towhidul & Meade, Nigel, 2000. "Modelling diffusion and replacement," European Journal of Operational Research, Elsevier, vol. 125(3), pages 551-570, September.
    21. Stremersch, S. & Lemmens, A., 2008. "Sales Growth of New Pharmaceuticals Across the Globe: The Role of Regulatory Regimes," ERIM Report Series Research in Management ERS-2008-026-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    22. repec:gam:jsusta:v:9:y:2017:i:6:p:1038-:d:101654 is not listed on IDEAS
    23. repec:gam:jsusta:v:9:y:2017:i:8:p:1378-:d:107066 is not listed on IDEAS
    24. van den Bulte, C. & Stremersch, S., 2003. "Contagion and heterogeneity in new product diffusion: An emperical test," ERIM Report Series Research in Management ERS-2003-077-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

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    Keywords

    diffusion; new product research;

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