18.3 Characteristics of consumers and the market
As well as the characteristics of an innovation affecting the extent of its take-up, the nature of the market and the purchasing behaviour of consumers can influence success. Some people will always try to be among the first to buy a new product – Rogers (2003) calls people in this group innovators (Figure 73). They are typically young, affluent, well-informed, receptive to new ideas and willing to take risks. You probably know people who always seem to buy the latest gadget – it might even apply to you.
The innovator group and the next group, called early adopters, are often targeted by a company's launch publicity. However these first two groups are more often influenced by information gathered from friends and colleagues and from reviews of new products in the technical press, specialised publications and the internet.
To the frustration of everyone involved with producing innovations, the majority of consumers are more cautious and inclined to wait to see a product established with any performance problems solved. Rogers calls this group the early majority and it is the target of intensive advertising campaigns to increase the rate of a new product's diffusion.
People's reticence is understandable, particularly with rapidly changing high-tech products. Who wants to be stuck with the latest equivalent of an eight-track audio cartridge or a Betamax video recorder?
Even more cautious consumers make up the group called the late majority, which tends to wait for the fall in price typical of mature products. The early and late majority tend to rely on the media and advertising for picking up information about a product.
Finally those in the laggards group buy a product close to the end of its life cycle, often shortly before it is replaced by a new, improved version of itself, or by something quite different. These last two consumer groups can also have economic reasons for delaying purchase.
There is also the question of timing. You saw above that some inventions can emerge before their time when the technology isn't sufficiently developed to deliver a reliable product. In other cases though, the inventive idea itself is okay and early products are satisfactory but it doesn't take off because the need for it is not yet established.
There have been a number of attempts to establish a market for the videophone over the last 50 years, with ever-increasing amounts of resources involved. In 2002 a few companies paid a staggering amount of money to acquire the operating licences for the so-called third generation of mobile telephony including video (£22 billion in the UK alone). Despite an intensive marketing campaign some mobile phone companies had only achieved around a tenth of their targeted market by 2004 and were nowhere near recouping the cost of the operating licence. (See Box 8.) Compared with the videophone, the relatively simple second generation technology of short message service (text messaging) clearly tapped into a need that mobile users had. By May 2002, 24 billion text messages were being sent each month and operators were getting from 10–20 per cent of their profits from text messaging.
Box 8 Diffusion of the videophone
The first experimental two-way videophone system was demonstrated in 1930 and linked the AT&T head office with its research department, which was called Bell Labs. In 1956 Bell Labs demonstrated its Picturephone system, which needed to use up to 125 telephone lines to achieve a reasonable picture. By 1968 Bell had improved the technology so that it would work with a relatively narrow bandwidth and finally the Picturephone video telephone was introduced by Bell Labs as a commercial product in 1971.
The Picturephone was thought by many inside Bell Labs to be an example of a perfect innovation. It had overcome significant technical obstacles yet still met its production schedule and cost objectives. Market research had predicted slow acceptance followed by rapid growth. It was, however, a costly flop. Reasons suggested for its failure include high cost (rental of $125 per month) or that it was black and white at a time when consumers in the US were getting used to colour TV. Fundamentally though it failed because the market was not ready for it – some said it didn't offer enough of a competitive advantage over the telephone to justify its intrusiveness.
Meanwhile further technical developments in the videophone continued, particularly in Japan (Figure 74). By the mid-1990s videophones had been made more efficient by the development of data compression technology and once more were being offered for sale. Also at that time video links between personal computers were starting to become more common, exposing an increasing number of people to the idea of two-way visual communication. A new need was in the process of being cultivated, with huge rewards for the leading producers once a mass market could be established.
In recent years it seemed the mass market would be established with so-called third generation mobile telephony (Figure 74). This technology included the capacity for high-speed data exchange, mobile internet access and video streaming. The first licences for such services were awarded in 2002 but once again the market has been relatively slow to take up video telephony.
Of course in terms of the innovation process for third generation mobile telephony it's early days to be passing a judgement that the need doesn't exist on a sufficiently large scale or can't be encouraged to grow. Operators have had to cope with the teething troubles of an untried technology standard (imposed by European governments to ensure cross-border compatibility); colour screens and more ambitious operating requirements mean shorter battery lives; and purchase and service rental costs have been high, as they always are with a new technology and a small initial market. A common pattern would be for some of the early operators to withdraw from the market before the technology is improved, the need increases and the product becomes profitable and diffuses.
The diffusion of some innovations is encouraged by an existing infrastructure. The rapid spread of the telegraph was made possible because it was easy to string its wires alongside railway tracks, which provided a ready-made link between towns and cities. The telephone in turn was able to start by making use of the telegraph network, although it had to add many extra elements such as links to individual homes. You saw in Part 1 how the development of the modern business corporation created the need for inventions such as the typewriter and the telephone to improve the speed and efficiency of communications.
Some inventions rely for their diffusion on developments in related technological innovations or systems. A method of audio compression known as MP3 was originally developed as part of the system used for high-definition TV transmission and digital satellite systems. MP3 is a standard (see Section 3: 1.4) that is part of a set published by the Motion Picture Experts Group. By ignoring audio content outside of the range of frequencies normally audible to humans, MPEG compression produces sound quality that is good enough and it results in a file of digital audio that is much smaller than previous sound files.
MP3 players started appearing in the early 1990s as separate audio players but didn't arouse much interest. The need for personal, portable audio was met at the time by cassette players and, increasingly through the 1990s, CD players. It took innovation in other areas to create the conditions that led to a growing interest in MP3 innovations. These areas included the increasing access to personal computers, the growth of the internet, the improvement in storage capacity of digital devices and the development of file-sharing software (see Section 3: 2.4).