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Diffusion of Innovation

The rate at which new ideas and technology spread

What is Diffusion of Innovation?

Diffusion of Innovation (DOI) is a theory popularized by American communication theorist and sociologist Everett Rogers in 1962 that aims to explain how, why, and the rate at which a product, service, or process spreads through a population or social system. In other words, the diffusion of innovation explains the rate at which new ideas and technology spread. The diffusion of innovation theory is used extensively by marketers to understand the rate at which consumers are likely to adopt a new product or service.

 

Diffusion of Innovation

 

Rationale Behind the Diffusion of Innovation

The adoption of a new product, service, or idea is not an overnight phenomenon – it does not happen simultaneously in a social system. According to research, consumers who adopt an innovation earlier demonstrate different characteristics than someone who adopts an innovation later. Therefore, to marketers, understanding the characteristics of each segment that will either help or hinder the adoption of an innovation is important.

In the diffusion of innovation theory, there are five adopter categories:

  1. Innovators: Characterized by those who want to be the first to try the innovation.
  2. Early Adopters: Characterized by those who are comfortable with change and adopting new ideas.
  3. Early Majority: Characterized by those who adopt new innovations before the average person. However, evidence is needed that the innovation works before this category will adopt the innovation.
  4. Late Majority: Characterized by those who are skeptical of change and will only adopt an innovation if it’s been used by the majority of the population.
  5. Laggards: Characterized by those who are very traditional and conservative. This category is the hardest to appeal to.

 

Rogers provides the distribution of the five adopter categories as follows: Innovators represent the first 2.5% of the group to adopt an innovation followed by 13.5% as early adopters, 34% as early majorities, 34% as late majorities, and 16% as laggards.

 

Diffusion of Innovation - Distribution Chart

 

Diffusion of Innovation: Innovators

Innovators are those who want to be the first to acquire a new product or service. They are risk-takers, price-insensitive, and are able to cope with a high degree of uncertainty. Innovators are crucial to the success of any new product or service as they help gain market acceptance.

For example, individuals who stay overnight outside a movie theatre to be the first to purchase the first showing to a movie are considered innovators.

 

Diffusion of Innovation: Early Adopters

Early adopters are those who are not as risk-taking as innovators and typically wait until the product or service receives some reviews before making a purchase. Early adopters are referred to as “influencers” or “opinion leaders” and are regarded as role models within their social system. They are critical in helping a product or service achieve critical mass.

Therefore, if early adopters of a product or service are small, the total number of people who adopt the product or service will likely be small as well. For example, individuals who wait a couple days and spends some time reading reviews before going to see a movie are regarded as early adopters.

 

Diffusion of Innovation: Early Majority

Early majorities represent the majority of the market – 34%. Early majorities are not risk-taking and typically wait until a product or service is tested or used by a trusted peer. The individuals are prudent and want to purchase things that are proven to work.

For example, individuals who wait for a movie to be rentable are regarded as early majorities.

 

Diffusion of Innovation: Late Majority

Late majorities also represent an important percentage of the market – 34%. Late majorities are the last group of consumers to enter the market; they adopt the product or service after the average member of a social system. The individuals are deemed conservative and are often technologically shy, very cost sensitive, skeptical, and cautious in making a purchase. In addition, late majorities are often peer pressured into purchasing the product or service.

For example, individuals who wait for a movie to become available online or on Netflix are regarded as late majorities.

 

Diffusion of Innovation: Laggards

Laggards are the last to adopt a new product or service. They resent change and rely on traditional products or services until they are no longer available. Laggards are likely to never adopt the product or service.

 

Importance of the Diffusion of Innovation

The diffusion of innovation explains the rate at which consumers will adopt a new product or service. Therefore, the theory helps marketers understand how trends occur, and warns companies of the likelihood of success or failure of their new introduction. By utilizing the diffusion of innovation, firms can predict which types of consumers will purchase their product/service and create effective marketing strategies to push acceptance through each category.

 

Related Readings

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Competitive Intensity
  • Demand Curve
  • Invisible Hand
  • Network Effect

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