The Bass Model or Bass Diffusion Model was developed by Frank Bass. It consists of a differential equation that describes the process of how new products get adopted in a population. The model presents a rationale of how current adopters and potential adopters of a new product interact. The basic premise of the model is that adopters can be classified as innovators or as imitators and the speed and timing of adoption depends on their degree of innovation and the degree of imitation among adopters. The Bass diffusion model is one of the tools to describe, and sometimes predict, the number of purchases for new consumer durable products.
The Bass Diffusion Model is often used in building Pricing Strategy models.
Experience from many innovations shows that the spread of a new method or concept in a market can be characterized by the Bass formula.
Parameters of the Bass Diffusion Model
The three parameters of the Bass Diffusion Model to predict Nt (Number of adopters at time t) are:
- m = the market potential; the total number of people who will eventually use the product
- p= the coefficient of innovation (external influence); the likelihood that somebody who is not yet using the product will start using it because of mass media coverage or other external factors
- q= the coefficient of imitation (internal influence); the likelihood that somebody who is not yet using the product will start using it because of “word-of-mouth” or other influence from those already using the product.
See the picture on the right for a typical graphic of the standard bass curve (with the average values of p and q of 0.03 and 0.38, respectively).
Usage of the Bass Diffusion Model
Bass diffusion theory is simple enough to allow a first assessment. There is no immediate need for further complex modeling. However care must be taken as the standard model is only one of the many models of technology diffusion. Many variations on the Bass Diffusion Model have been developed over time, often claiming further precision or applicability for certain circumstances.
The dynamics of the innovation uptake curves, and how the technology or its application diffuse into the market, is a crucial analytic tool when assessing the business case for internal or external investments in new technologies. For early stage investments or internal business cases for new products, it is essential to have some understanding of the likely diffusion of the technology. By not having a mental model to test against reality, the amount of capital, time to market and the window of opportunity can be grossly misjudged. Diffusion of innovation models are important tools for effectively assessing the merits of investing in technologies that are new or novel and do not have prima facie, predictable patterns of user up-take.Business frameworks like Bass Diffusion Model are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.