Customer influence value and purchase acceleration in new product diffusion

Abstract

When social influence plays a key role in the diffusion of new product, the value of a customer often goes beyond her own product purchase. We posit that a customer's value (CV) comes not only from her purchase value (PV) but also from her influence value (IV) (i.e., CV = PV + IV). Therefore, a customer's value can be far greater than her purchase value if she exerts a considerable influence on others. Building on a two-segment influential-imitator asymmetric influence model, we develop a model framework to derive closed-form expressions for PV, IV, and CV by customer segment as well as time of adoption, and we examine their comparative statics with respect to the diffusion parameters. A key parameter of our model framework is the social apportioning parameter, δ, which determines the credit a customer receives by influencing other potential adopters. We develop an endogenous method for determining δ as a function of the new product diffusion parameters. Our model framework allows us to investigate how a firm might accelerate product purchases by providing introductory discount offers to a targeted group of potential adopters at product launch. We find that purchase acceleration frequently leads to a significant increase in total customer value. © 2012 INFORMS.