Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
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Understanding the Diffusion of Innovation Theory
The Diffusion of Innovation Theory was developed by sociologist E.M Rogers in 1962.
The basic premise of Rogers’ theory is that people spread, or diffuse, ideas and products through a population.
With enough time, they are adopted by wider society as a whole.
Indeed, adoption in this context means that a consumer does something that they hadn’t done previously.
Businesses and marketing departments should be most interested in diffusion that results in consumers purchasing a new product and influencing wider society to do the same.
For that process to play out in reality, the right type of consumer must be targeted. In the next section, we will look at how this might be accomplished.
Categories of consumers in the Diffusion of Innovation Theory
Individual consumers within a social system can be classified into five distinct groups according to their propensity for innovation.
1. Innovators
Innovators are consumers who are the first to buy a new product after it enters the market.
In general, they come from higher socioeconomic classes and have the liquidity required for high-risk tolerance.
They are also very social and have many close contacts with other innovators.
2. Early adopters
Early adopters are similar to innovators in their degree of liquidity, education level and social status.
They are generally more opinionated about their life choices and enjoy a degree of leadership in this area.
However, their risk tolerance is lower and as a result, they are more discerning about the type of products they adopt.
3. Early majority
The early majority represents consumers who adopt a new product or technology after a sufficient amount of time has passed.
They are not as vocal about their life choices as the early adopters, but their opinions still carry weight in wider society.
4. Late majority
Late majority consumers approach a new product with scepticism because of their low liquidity and social status.
They will generally not adopt a new product until the majority of a population of consumers has done so.
5. Laggards
Laggards are the last consumers to adopt a new product.
They tend to be found in older demographics who have traditional values opposed to change.
They also have small social circles and have little to interesting in voicing their opinions.
Using the Diffusion of Innovation Theory in marketing
For marketing departments, efforts are best served by focusing on the early adopters and early majority.
While the temptation may be to market to innovators, businesses should not confuse an innovator’s high tolerance for risk with the popularity of their products.
Efforts are best served by focusing on the early adopters and early majority.
Consumers in these segments represent a sweet spot for marketers – with their high levels of disposable income, sociability, and product discernment.
For these reasons, these consumers create momentum that helps drive a product to its tipping point – or the point at which it becomes widely adopted in society.
In short, when Tesla entered the market, it didn’t do it by trying to build an EV that could be distributed to the masses.
Indeed, Tesla was not the first to try to build a successful EV vehicle.
In the mid-late 1990s, General Motors built a car called EV1.
The car was supposed to target right on a more significant segment of the market.
This made sense for General Motors because, as an established automaker, it made sense to look into the development of an electric vehicle, only if this would go after a large market.
Yet, this turned out into a complete failure.
That’s the core difference between a startup and an incumbent.
When launching new products, an incumbent like General Motors tries to go after large market segments right on (targeting the late majority).
A startup with constrained resources must do the opposite.
A company like Tesla, with limited funding, had to figure out how to niche down the market as much as possible to showcase the technology without going bankrupt.
To Tesla in the early days, it didn’t matter how small it was the niche it was going to tackle.
What mattered was the ability to showcase the technology at first.
This is a core difference, as whereas new entrants develop markets by starting from tiny niches, incumbents try to launch markets by starting from the masses!
The former approach creates options to scale, where failure is cheap and bearable.
The latter creates a scenario where failure gets so expensive that if the product doesn’t reach the masses, it will be withdrawn, and progress will be stopped for years!
Therefore, Tesla used the Roadster as a gateway to the car industry, targeting a tiny market segment made of innovators who supported Tesla’s mission.
Over time, Tesla managed to produce – in parallel – other EVs to tackle larger and larger segments of the market.
It took Tesla fifteen years to start working toward mass manufacturing the Model 3.
Whereas incumbents try to tackle mass markets right off the bat.
New entrants, with limited funding and constrained resources, niche down to the point of tackling, what seems, an interesting microniche.
Over time, that microniche can turn into a giant industry!
Cost of failing
The incumbent comes up with a strategy where failure gets extremely expensive, and failed launch turns into an unsuccessful product for years.
A new entrant instead niches down as much as possible to make failing fast and cheap.
In the case of General Motors, the failure of the EV1 was such that still, in the 2020s, the company had to recover and compete in full in the EV industry.
Options to scale
A key thing to understand is that when launching new products, you don’t need to go after an extensive market.
Tackling a large market requires economies of scale.
And achieving economies of scale requires a foundational product that has been iterated many times over at various scales of production.
This process takes years to build up.
Thus, looking for small opportunities that create options when launching a whole new product to scale would be best.
You can always decide – once the product works at a small scale – to try to make it work at a larger scale.
The opposite is not true.
When you try to make a product work at a large scale, failure is – almost guaranteed.
There is one exception to the rule, and that is Apple’s iPhone. The rest is mainly guaranteed failure.
Strategy vs. product launches
When building a new market, you must shift your mindset from product vs. strategy.
The product launch mindset is that you want to see the product succeed at scale.
Instead, a strategy mindset requires understanding that for a product to be successful at scale, it needs to be rolled out through various stages of iterations, at various scales, for years. In some cases, it might take decades.
In other words, today’s microniches are tomorrow’s mass markets!
And to succeed, you want to limit your options today to create options to scale tomorrow!
Key takeaways
At its core, the Diffusion of Innovation (DOI) Theory examines how ideas are spread from introduction to much wider adoption and acceptance.
The Diffusion of Innovation Theory proposes that consumers can be grouped into five categories according to their tendency to adopt new ideas.
Marketing departments must focus their efforts on certain consumer segments who give more important feedback on product viability than others.
Key Highlights
Diffusion of Innovation Theory: Developed by sociologist E.M Rogers in 1962, this theory explores how ideas and products spread through a population over time. The ultimate goal is for these ideas or products to be adopted by society as a whole.
Consumer Adoption: Adoption in this context refers to consumers taking up a new behavior or purchasing a new product. This process is crucial for businesses and marketers, as they want to influence consumers to adopt new products and contribute to their widespread acceptance.
Categories of Consumers: The theory categorizes consumers into five groups based on their willingness to adopt new ideas or products:
Innovators: First to adopt, often with high risk tolerance and strong social networks.
Early Adopters: Similar to innovators but more discerning and influential.
Early Majority: Adopt after a new idea or product gains some traction.
Late Majority: Skeptical and adopt only when most have already done so.
Laggards: Last to adopt, often due to traditional values and limited social circles.
Marketing Implications: Marketing efforts are best directed towards early adopters and early majority, as they have high disposable income, sociability, and influence. These segments can create momentum leading to a product’s widespread adoption.
Tesla Case Study: Tesla’s approach to the market exemplifies the diffusion of innovation theory. Tesla started by targeting a small niche (innovators) with their Roadster to showcase their technology. Over time, they expanded to larger market segments.
Startup vs. Incumbent Strategy: Startups, with limited resources, should initially target small niches to showcase their technology and iterate gradually. Incumbents may try to target large markets from the beginning, making failure expensive.
Options to Scale: New products should be tested in smaller niches before attempting mass-market adoption. Scaling requires iterative development and takes time, while trying to scale prematurely often leads to failure.
Mindset Shift: To succeed in building new markets, a strategy mindset is crucial. Understanding that products need iterations and scaling over time is essential for long-term success.
The change curve is a model describing how people emotionally respond to change. The change curve model was created by Swiss-American psychiatrist Elisabeth Kübler-Ross to describe the five stages of grief terminally ill people go through. Further versions comprise eight stages that go from denial, anger, frustration, depression, acceptance, exploration, commitment and growth.
The S-Curve of Business illustrates how old ways of doing business mature and then become superseded by newer ways. The S-Curve itself is based on a mathematical concept called the Sigmoidal curve. In the context of business, the curve graphically depicts how an organization grows over a typical life cycle.
The Experience Curve argues that the more experience a business has in manufacturing a product, the more it can lower costs. As a company gains un know-how, it also gains in terms of labor efficiency, technology-driven learning, product efficiency, and shared experience, to reduce the cost per unit as the cumulative volume of production increases.
The Product Life-cycle (PLC) is a model that describes the phases through which a product goes based on the sales of a product over the years. This model is useful to assess the kind of marketing mix needed to allow a product to gain traction over time or to avoid market saturation.
In his book, The Creative Curve, Allen Gannett describes how popular ideas follow a relationship between familiarity and preference as an upside down U. That is the Creative Curve. When something is very new and unfamiliar, we don’t like it that much. Therefore, according to the Creative Curve, the ideas that become popular have a blend of familiarity and novelty. All ideas reach a point of overexposure where they become cliché, and they start to lose popularity and downfall until they grow out of date.
Business modelinnovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
