Accelerating the diffusion of innovations under mixed word of mouth through marketing–operations interaction
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In this paper, an extension of the Bass model is suggested that accounts for the influence of conformance quality on mixed (i.e., positive and negative) word-of-mouth in the diffusion of a new product. A primary goal is to determine how an active operational policy seeking to continuously improve conformance quality affects the optimal leveraging of marketing instruments used to diffuse new products, and the resulting sales and profits. To do so, an optimal tradeoff by a monopolistic firm between advertising effort and price, on the one hand, and conformance quality, on the other hand, is analyzed, along with the implications for word of mouth effectiveness. Our results can be summarized as follows. Price and advertising levels are respectively lower and higher under an operations–marketing policy than under a marketing policy only. As a result, the market potential and the innovation effect are higher under an operations–marketing policy than under a marketing policy only, as is the imitation effect due to conformance quality improvements over time. Also, greater cumulative sales and cumulative profits are obtained. However, higher design quality results in a lower price and greater advertising effort under an operations–marketing policy than under a marketing policy only. Finally, for lower design quality, the two policies result in different patterns (non-monotonic vs. monotonic) for price and advertising yet cumulative sales and profits are of quite similar magnitude.
KeywordsDiffusion process Word-of-mouth Conformance quality Design quality Price Advertising effort
The authors acknowledge helpful comments by an anonymous reviewer. They also thank Konstantin Kogan and Peter Kort for constructive suggestions on an early draft presented at the XIIIth Viennese Workshop on Deterministic Optimal Control and Differential Games, Vienna, Austria, May 2015. The usual disclaimer applies. This research was supported by the Centre for Research of ESSEC Business School (France) and the Austrian Science Fund (FWF) under Grant No. P25979-N25. The first author dedicates this paper to the memory of Professor Hervé Mathe, a wonderful colleague and friend.
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