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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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Leaping Ahead to Valuing the Next Generation

Leaping Ahead to Valuing the Next Generation

(p.187) Chapter Seven Leaping Ahead to Valuing the Next Generation
Innovation Equity

Elie ofek

Eitan Muller

Barak Libai

University of Chicago Press

This chapter examines successive innovation generations in a category. It shows that a new generation may diffuse faster than its predecessors, in terms of when absolute adoption numbers are achieved, due primarily to an increase in the long-run market potential rather than a drastic change in adoption forces. Looking at penetration levels (percent of long-run market potential) instead of absolute adoption can aid in comparing diffusion rates across generations. The chapter explains how a next generation can attract adopters from three demand sources. Specifically, those who are: previous generation adopters switching to or adding the new one (upgraders); part of the previous generation’s market potential that skip directly to the next generation (leapfroggers); new potential adopters originating from a market expansion effect (newcomers). A next-generation diffusion model is presented that captures the various demand sources, as well as the period of diffusion overlap and possible cannibalization between two successive generations. By combining expected customer lifetime value and long-run market potential parameters for the next generation with knowledge of the adoption forces of the previous generation, the model can be used to formulate innovation equity projections. Examples are drawn from the music player, mobile phone, home video-game and computer industries.

Keywords:   successive generations, upgrading, leapfrogging, category expansion, cannibalization, diffusion speed, next generation diffusion model, portable music players, mobile phones, computer mainframes

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