The purpose of this study is to develop and test a diffusion model for explaining and managing the growth of a new low-priced, low-involvement, consumer nondurable product. A nonlinear model is constructed which considers the effect of advertising, pr...
The purpose of this study is to develop and test a diffusion model for explaining and managing the growth of a new low-priced, low-involvement, consumer nondurable product. A nonlinear model is constructed which considers the effect of advertising, price, other product sales, geographical distribution of the consumer base, and the class of consumer purchase. In addition to fitting the model to the data, this research studies the dynamics and uncertainty of the model`s parameters, especially at the early stages when the availability of information is limited. A new product which a retail store introduced early 1989 was selected for empirical study. The sample consisted of all consumer purchase events during the first three months of the diffusion process. Managerial information was also provided by the store for this study. The empirical results showed a good fit of the proposed model to the data. It was found that external factors are more prevalent in expediting the diffusion of a nondurable than internal factors. Both the overall adequacy and the forecasting performance of the model were good. The forecast of the proposed model by INLS (indirect nonlinear least square) outperformed three alternative forecasting models with the same number of parameters in terms of forecast accuracy. A time-varying forecasting approach was suggested for further research, although its empirical result in this study did not outperform that of INLS.