Economics of Marketing and Diffusion of Agricultural Inputs

Abstract

Specific Research Objective. Develop a theory of technology adoption to analyze the role of promotional tools such as advertising, product sampling, demonstrations, money back guarantees and warranties in inducing technological change. Use this theory to develop criteria for assessing the optimal use of marketing activities in launching new agricultural input technologies. Apply the model to analyze existing patterns of marketing budget allocation among promotional tools for various agricultural input industries in the United States and Israel. Background to the Topic. Marketing tools (money-back guarantees [MBG] demonstration, free sampling and advertising) are used extensively to induce the adoption of agricultural inputs, but there is little understanding of their impacts on the diffusion of new technologies. The agricultural economic literature on technology adoption ignores marketing efforts by the private sector, which may result in misleading extension and technology transfer policies. There is a need to integrate marketing and economic approaches in analyzing technology adoption, especially in the area of agricultural inputs. Major Conclusion. Marketing tools play an important role in reducing uncertainties about product performance. They assist potential buyers to learn both about objective features, about a product, and about product fit to the buyer's need. Tools, such as MBGs and demonstration, provide different information about product fit but also require different degrees of cost for the consumer. In some situations they can be complimentary and optimal strategy combines the use of both. In other situations there will be substitution. Sampling is used to reduce the uncertainty about non-durable goods. An optimal level of informational tools declines throughout the life of a product but stays positive at a steady state. Implications. Recognizing the heterogeneity of consumers and the sources of their uncertainty about new technologies is crucial to develop a marketing strategy that will enhance the adoption of innovation. When fit uncertainty is high, allowing an MBG option, as well as a demonstration, may be an optimal strategy to enhance adoption.