MODELING PRODUCT DIFFUSION BY SYSTEM DYNAMICS APPROACH

Abstract

ABSTRACT Demand forecasting plays an important role in demand management, and product diffusion model had been used to forecast the demand of new products for several years. Bass diffusion model describes the empirical adoption curve by using two important factors, namely, the coefficients of innovation and imitation. In 1975, R-L model incorporated the “price” decision variable into diffusion model. A generalized Bass model incorporated price and advertising policies into the original Bass model to analyze empirical new product diffusion process. In this research a system dynamics diffusion model was constructed to model the dynamical diffusion process of a new product. In addition to the four factors, the effect of product brand was added into the system dynamics model. The model was tested and results revealed that the prediction capability of the proposed system dynamics model is better than those of Bass diffusion model, R-L model and generalized Bass model.