Customer Influence Value and Purchase Acceleration in New Product Diffusion

As social influence plays a key role in the diffusion of new product, a customer's value goes beyond her own product purchase. Building on the two-segment Influential-Imitator asymmetric influence model by Van den Bulte and Joshi (2007), our model posits 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 considerable influence on others as an early adopter. Using the CV = PV + IV framework, our model provides microscopic insights into individual customer values. Specifically, we develop closed-form expressions for PV, IV, and CV by customer segment and by time of adoption, and examine their comparative statics with respect to the diffusion parameters. Our framework allows us to investigate how a firm might implement purchase acceleration to maximize its profit by speeding up the diffusion process via introductory discount offers. Our results suggest that the firm often gains more from increased IV of early adopters than it loses from their PV due to the discounts. Depending on the diffusion parameters, the firm may invite either segment to give discount offers