Reports

Wider Gaps in a Flatter World? The Speed of New Product Diffusion in Rich versus Poor Countries

Ashish Sood and Christophe Van den Bulte, 2016, 16-113

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Given the speed and extent of globalization, marketers need to understand how new products gain market acceptance in different countries. Whether the speed of new product diffusion has converged or diverged between rich and poor countries is an open question with important managerial implications.

In this report, Ashish Sood and Christophe Van den Bulte provide new insights by analyzing 848 diffusion trajectories of 15 consumer durables in 86 countries between 1977 and 2010.  They address three questions:

  • Has the speed at which new products gain market acceptance evolved differently in rich and poor countries over the last four decades? Specifically, has the speed been converging or diverging?
  • Considering the possibility that the global convergence in consumer wants and the increased wealth in emerging economies are concentrated within the upper strata, does the pattern of convergence or divergence differ in the speed to reach 10% versus 50% household penetration?
  • Does the relation between income and diffusion speed differ across product categories?

Findings

Their analysis offers evidence that new product diffusion has accelerated, and that this acceleration is more pronounced in the speed to reach 50% than 10% penetration. However, there is no compelling evidence that diffusion speed to either 10% or 50% penetration has been converging between poor and rich countries between 1977 and 2010. Instead, the evidence clearly shows that diffusion speed for the time to 50% penetration has diverged between rich and poor countries over the last three decades (mirroring divergence in income levels between rich and poor countries). The gap between rich and poor countries in how quickly the top 10% adopts has neither widened nor narrowed.

This finding is at odds with Theodore Levitt’s (1983) vision of increasing market globalization. It implies that marketers should take a more nuanced perspective, consistent with studies of demographic, intellectual, financial, and political dimensions that document continued fragmentation and heterogeneity across counties.

The authors note that some of their findings may be interpreted as consistent with the notion of increased homogenization and flattening of markets. Their findings of divergence in the speed to 50% but not 10% penetration raise the possibility that the “flattening” forces of improved infrastructure, improved communication, and increased homogenization have been more pronounced in the top 10% than the top 50% of the population.

Further, white goods diffuse differently than other consumer durables. Specifically, income gains do not appear to matter at all or may even decelerate the diffusion of white goods.

Overall, their analysis suggests that managers should be wary of forecasting how quickly a new product category will gain market traction in poor countries based on its speed of growth in rich countries. Such generalization may be safe if targeting only the top 10% of the population, but is likely to be very misleading for the median household. Managers need to exercise greater patience and make larger downward adjustments in penetration forecasts for poor vs. rich countries if they aim to reach beyond the upper strata into the middle of the income pyramid.

Further, when targeting markets experiencing strong growth in income per capita, managers should be mindful that growing income is associated with significant increased penetration growth for electronics and telecom, but not for home appliances.

Ashish Sood is Assistant Professor of Marketing, University of California Riverside. Christophe Van den Bulte is Gayfryd Steinberg Professor and Professor of Marketing, The Wharton School, University of Pennsylvania.

Acknowledgments
The authors benefited from comments by Raghuram Iyengar, Gerard Tellis, Pinar Yildirim, and session participants at the 2014 ISMS Marketing Science Conference, the 2015 AMA Winter Marketing Educators' Conference, and the 2015 EMAC Conference.

 

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