Diffusion of Reverse Innovations across Markets: An Agent-Based Model

Abstract

This chapter uses an Agent-Based Model (ABM) to perform simulated experiments on adoption of a reverse innovation under the influence of paid advertising messages and word of mouth. The main objective is analyze the adoption and diffusion of a reverse innovation across a developing country—the country in which a reverse innovation is first launched—to then analyze its further diffusion in a developed country. While most of literature on diffusion and adoption of innovation is focused on aggregated transversal studies, this chapter utilizes an ABM to analyze the phenomenon at the micro market level, that is, observable consumer decisions. As secondary data on sales of reverse innovations is almost unavailable, this study relies on an experimental design with different levels of paid advertising messages and word of mouth, network densities, and market sizes. Results show that a reverse innovation diffuses faster in a developing country and reaches a larger market segment than the diffusion in a developed country. Managers are called to enact an ambidextrous marketing strategy across countries and to expect differentiated diffusion patterns.