Why Consumers Don't Buy Case Study

Topics: Innovation, Endowment effect, Prospect theory Pages: 3 (917 words) Published: November 30, 2011
Innovation does not equal success. Unfortunately over two thirds of innovative new products fail once commercialized. The case “Why Consumers Don’t Buy: The Psychology of New Product Adoption,” provides a thorough explanation as to why this is so and then provides some strategies firms could use to combat this observable fact. As background information the case provides the rules/definition of Prospect Theory and the endowment effect. It uses these concepts to conclude innovations must be significantly better than products currently on the market to overcome biases consumers develop as result of loss aversion. The case also suggests that the successes of innovations are hindered by the inability to compare costs and benefits in timing, certainty, and quantification. Finally it proposes that innovators may not be best suited to evaluate the potential of their innovations. Depending on the value created and captured products could fall into one of four categories; firms should clearly understand what they are asking of consumers. To increase the number of successful innovations firms can use two broad set of strategies when managing innovations. The first set of strategies requires firms to accept consumer resistance and prepare for it. The second set encourages firms to minimize consumer resistance via different paths. Marketing Principles Described and Tested

One of the marketing principles described in the case is the Endowment Effect. The Endowment Effect states that people value items in their own possession more than they value items not in their possession. Because of this they will view “giving up” what is in their possession as a loss that looms greater than the gain of obtaining the new item; therefore they are less likely to adapt and buy a new product if it requires them to “give up” a product they already possess.

Another issue is that a potential buyer is rarely faced with costs and benefits that are comparable in their timing,...
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