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Accelerating the diffusion of innovations under mixed word of mouth through marketing–operations interaction

Fouad El Ouardighi (), Gustav Feichtinger and Gila E. Fruchter
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Fouad El Ouardighi: ESSEC Business School
Gustav Feichtinger: Vienna University of Technology
Gila E. Fruchter: Bar-Ilan University

Annals of Operations Research, 2018, vol. 264, issue 1, 435-458

Abstract: Abstract 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.

Keywords: Diffusion process; Word-of-mouth; Conformance quality; Design quality; Price; Advertising effort (search for similar items in EconPapers)
Date: 2018
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