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Innovation EquityAssessing and Managing the Monetary Value of New Products and Services$
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Elie Ofek, Eitan Muller, and Barak Libai

Print publication date: 2016

Print ISBN-13: 9780226618296

Published to Chicago Scholarship Online: May 2017

DOI: 10.7208/chicago/9780226394145.001.0001

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Survival in the Presence of a Rival

Survival in the Presence of a Rival

Valuing Innovations at the Brand Level

(p.144) Chapter Six Survival in the Presence of a Rival
Innovation Equity

Elie ofek

Eitan Muller

Barak Libai

University of Chicago Press

This chapter focuses on the implications of competition for innovation equity. When multiple firms introduce innovations in the same space several customer dynamics emerge. First, as new customers continue entering the category some past adopters may switch brands, a process called churn, and others may leave the category altogether, a process called disadoption. Attrition is the sum of churn and disadoption and is linked to the rentention rate used in assessing customer lifetime value. Second, two types of social adoption forces arise: when existing customers of one brand influence prospects to adopt that same brand we call this a within-brand force and when they influence prospects to adopt a competing brand we call this a cross-brand force. A competitive diffusion model is developed that captures these effects. The model accommodates a host of market phenomena: faster initial growth rates of entrants relative to incumbents; fallout from standards wars; effectiveness of seeding programs for customer base growth; and piracy that benefits the original producer. Two examples demonstrate how to apply the model to assess the monetary value of competitive moves: improving the product/service (adding Howard Stern to Sirius Satellite Radio), and executing a price cut (by a Belgian mobile service provider).

Keywords:   competition, churn, disadoption, attrition, cross brand effects, competitive diffusion model, piracy, seeding campaign, standards wars, Howard Stern

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