scheduling and selecting the methods of innovation...
TRANSCRIPT
International Journal of Economics, Commerce and Management United Kingdom Vol. II, Issue 4, 2014
Licensed under Creative Common Page 1
http://ijecm.co.uk/ ISSN 2348 0386
SCHEDULING AND SELECTING THE METHODS OF INNOVATION PRODUCTS'
PROMOTION TO THE MARKET
Kravchenko, Tetiana
Finance and Banking Dept., Donetsk National University, Donetsk, Ukraine
Abstract
Nowadays in Ukraine’s economy, one of the most important targets in innovation products'
promotion to the market is scheduling and selecting the promotion methods. The paper reviews
problems in innovation products' promotion to the market and proposes different simulation
techniques and tools for scenario analysis. Through the use of Business Process Modeling
Notation (BPMN), the article focuses the attention on reconciliation of interests of innovation
products' producers and agents of transfer. Besides that it expresses the view that project-
based approach can be used for improving the innovation products' promotion. The paper also
deals with a simulation model of the innovation products' diffusion developed in terms of system
dynamics. This model allows estimating the effectiveness of the commercialization of innovation
products depending on the implementation of internal management decisions and the impact of
external factors.
Keywords: Innovation Products, Promotion, Real and Potential Customers, Subjects of
Promotion.
INTRODUCTION
The studies of Bass (1969), Charters (1972), Cooper (1990), Davies (2002), Dean J. (1976),
Gibson (1990), Joachimsthaler (2009), Keller (2011), Kotler (2002), Lovelock (2004), Mahajan
(1990), Nutley (2002), Pellegrin (1972), Petrosyan (2008), Popov (2002), Rogers (1995),
Williams (1990), Walter (2002), Wolfe (1994), Zmud (1990) are devoted to research of methods
of promotion the innovation products to the final consumer.
However, in the above studies the mechanism of scheduling of innovation products'
promotion to the market is not clearly described. So, it‟s important to find out criteria of methods'
selection by which innovation products in the shortest possible time with minimum cost for its
producers can be advanced on the market.
Thus, this study is devoted to development of organizational arrangements of scheduling
and selecting the methods of innovation products' promotion to the market.
© Kravchenko
Licensed under Creative Common Page 2
Therefore, study‟s objectives are to define subjects of promotion and clarify their relationships
and subordination, select methods and time limits of promotion. As a result of these activities
will be possible the harmonization of subjects' interests by developing and promoting innovation
products, whose interests often do not coincide.
METHODOLOGY
The divergence of interests of innovation products' producers and agents of transfer is a cause
of gap between the process of promotion of innovation products to market and innovation
process. Currently, there are scores of process modeling tools and methodologies. Business
Process Modeling Notation (BPMN) will provide participants of innovation products' promotion to
the market the capability of understanding their internal business procedures in a graphical
notation and will give them the ability to communicate by using these procedures in a standard
manner. Therefore, a standard graphical notation will facilitate the understanding of the
performance collaborations and business transactions within and between the organizations.
This will ensure that participants of innovation products' promotion to the market will understand
themselves and participants in their business and will enable them to adjust to new
circumstances quickly.
Untimely decisions in management of innovation products' promotion to the market will
lead to groundless of beginning and end of such promotion. The project-based approach can
improve the innovation products' promotion to the market. This approach allows organizing the
innovation process as a series of projects by the innovative products' generation, promotion to
the market and diffusion there. In general, the beginning of a new project may precede the time
of completion of the old project, match or follow him.
Lack of monitoring system for scale and speed of innovation products' promotion to the
market doesn't allow reacting quickly to deviations from the planned parameters using formal
and informal methods. This paper elaborated the simulation model of innovation products'
diffusion formalized in terms of system dynamics. This model is based on the conceptual model
of the diffusion of innovations (Rogers, 1995). Furthermore it develops a mathematical Bass'
model of the diffusion of innovation (Bass, 1969). This model allows estimating the range and
speed of innovation products' diffusion.
RESULTS
First of all, it should be identified the subjects of promoting the innovative products to the
market:
Producers of innovation products;
Consumers of innovation products;
International Journal of Economics, Commerce and Management, UK
Licensed under Creative Common Page 3
Business entities, intellectual property or rights on that property used in the
production of innovation products;
Financial and credit institutions and foreign organizations which direct their funds
to finance the process of promoting innovation products to the market;
Intermediaries involved in the process of promoting innovation products to the
market;
Organizations that provide services of financial leasing, engineering, consulting,
sales and marketing, information security, certification, standardization so on;
and research and technology parks, business incubators and other organizational
structures to facilitate the promotion of innovation products to the market;
Public authorities which regulate the process of promotion of innovation products
to the market.
The deficit of own financial assets, high price on loans, and duration reduction of innovation
products' life cycle determine the searching for partners and investors in the process of
promoting innovative products to the market(Figure 1).
Promotion of innovation products to the market may be performed by a vertical or horizontal
integration of subjects (Colangelo, 1995). Cooperation between subjects possible within:
Sectorial research institute, created by business entities on the basis of mutual
funds;
Innovation centers on the basis of combining entities, representatives of science
and industry;
Financial-industrial groups (FIGs) holdings and others with horizontal (sectorial),
vertical (cross-sectorial), mixed (horizontal plus vertical) and diversified (through
the merger-takeover) relationships between business entities.
After defining the subjects of promotion and dividing the rights and obligations between them it
is necessary implement market testing of innovation products (Kravchenko, 2006).
The next step in scheduling of innovation products' promotion to the market should be
study of reaction of the major consumer' groups. Their reaction depends on their expectations
and reputations of producers. Then producers of innovation products choose a pricing strategy
(Dean, 1976).
© Kravchenko
Licensed under Creative Common Page 4
Figure 1: Scheme of searching for partners and investors in the process of promoting innovative
products to the market in BPMN notation
Defining a strategy and pricing methods, go to the next step of in scheduling of innovation
products' promotion to the market – to the choose of promotion methods. Traditional methods of
Usi
ng
sta
ge
R&
D s
tag
e D
ev
elo
pm
en
t
sta
ge
Test
ing
sta
ge
Pro
du
cti
on
sta
ge
International Journal of Economics, Commerce and Management, UK
Licensed under Creative Common Page 5
products promotion cannot always be used in the marketing of innovation products. In this
regard, Egorov (2008) indicates methods applicable in the promotion of innovation products:
Establishment of joint ventures; Transfer / sale of licenses and know-how; Franchising; Leasing;
Outsourcing of innovation products; Technology Consulting; Technology Brokerage Events;
Internet-Technology.
In addition to direct methods of promotion of innovation products to the market, it is
necessary to take into account indirect (reflexive) methods of promotion of innovation products,
such as diffusion(Bass, 1969; Rogers, 1995). In this study the diffusion of innovation products is
the process of dissemination of innovation products by communication channels during the time
and space among the participants of the promotion process of innovation products to the
market. This paper carries out the development of simulation model of diffusion of innovation
products by system dynamics method. For this purpose the stages of the life cycle of innovative
products are as follows:
1) Development and production of innovation products;
2) Innovation products' promotion to the market, including its diffusion;
3) Saturation of the market, obsolescence of innovation products.
Generalization of the above can be represented in cause-effect diagram of innovation products'
diffusion (See Figure 2).
Figure 2: Cause-effect diagram of innovation products' diffusion
Value of benefits
from innovation
product’
implementation Innovation products’
implementations
experience
Novelty of
innovation products
Number of
innovation products’
implementations
+
Number of real
customers of
innovation product’
Number of potential
customers of
innovation product’
Price of
innovation
products
+
+
-
-
+Number of
imitators
Intensity of
advertising
+
Number of practical
approval of
innovation productsCost of
implementation
+Current assets
volume
Revenue from innovation
products’ sales
+
+
+
+
Innovation
product’s
producers's
profit
-
+
Total costs
+
-
Limit of innovation
products’ implementation
Сost of
innovation
products’ using
-
Limit of innovation
products’ diffusion -
+
+
Defective
innovation
products
-
-
+
-
- -
+
Period of
innovation
product’s sale
+
Capacity of
communication
channel
+
+
+
© Kravchenko
Licensed under Creative Common Page 6
Figure 3: Diagram of the model of innovation products' diffusion in the application program
package PowerSim
A
ttract
ion
of im
itato
rs
App
robat
ions
Bud
get of
innov
atio
n's
real
izatio
n
Pot
entia
l Reci
pien
ts
Rate
_Im
itato
rs
InfInte
ns_
Cost
s
Appro
batio
n
Appro
batio
n
Appro
b_Valu
e
Imita
tors
Imita
tors
Rec_
per_
Imit
Lim
it_R
eci
p
Reci
pie
nts
Appro
b_Costs
Tim
e_Searc
h
Inf_
Inte
ns
a
Min
Imit
Period_Appr
ob
BudgetD
ebt
s
Budget
Rate
_Im
itato
rsDebt
s
Debt
s
InfInte
ns_
Cost
s
Budget
Rate
_Appro
b
Pote
nt_R
ecip
ients
Rate
_PR
Inf_
Quota
Paym
ents
A
ttract
ion
of im
itat
ors
A
ppro
bat
ions
Bud
get
of in
nova
tion'
s re
aliz
atio
n
Pote
ntia
l Reci
pients
Rate
_Im
itato
rs
InfInte
ns_
Cost
s
Appro
batio
n
Appro
batio
n
Appro
b_V
alu
e
Imita
tors
Imita
tors
Rec_
per_
Imit
Lim
it_R
eci
p
Reci
pie
nts
Appro
b_C
osts
Tim
e_S
earc
h
Inf_
Inte
ns
a
Min
Imit
Period_A
ppr
ob
BudgetD
ebt
s
Budget
Rate
_Im
itato
rsDebt
s
Debt
s
InfInte
ns_
Cost
s
Budget
Rate
_A
ppro
b
Pote
nt_R
ecip
ients
Rate
_P
R
Inf_
Quota
Paym
ents
Attr
actio
n of
imita
tors
App
roba
tions
Bud
get o
f inn
ovat
ion's
realizat
ion
Pot
entia
l Rec
ipient
s
Rat
e_Im
itato
rs
InfIn
tens
_Cos
ts
App
roba
tion
App
roba
tion
App
rob_
Valu
e
Imita
tors
Imita
tors
Rec
_per
_Im
it
Lim
it_R
ecip
Rec
ipie
nts
App
rob_
Cos
ts
Tim
e_Sea
rch
Inf_
Inte
ns
a
MinIm
it
Per
iod_
Appr
ob
Bud
get
Deb
ts
Bud
get
Rat
e_Im
itato
rsDeb
ts
Deb
ts
InfIn
tens
_Cos
ts
Bud
get
Rat
e_App
rob
Pot
ent_
Rec
ipie
nts
Rat
e_PR
Inf_
Quo
ta
Pay
men
ts
Attra
ctio
n o
f im
itato
rs
Appro
bations
Budget of in
novation's
realiz
atio
n
Pote
ntia
l R
eci
pie
nts
Rate
_Im
itato
rs
InfInte
ns_
Cost
s
Appro
batio
n
Appro
batio
n
Appro
b_V
alu
e
Imita
tors
Imita
tors
Rec_
per_
Imit
Lim
it_R
eci
p
Reci
pie
nts
Appro
b_C
osts
Tim
e_S
earc
h
Inf_
Inte
ns
a
Min
Imit
Period_A
ppr
ob
BudgetD
ebt
s
Budget
Rate
_Im
itato
rsDebt
s
Debt
s
InfInte
ns_
Cost
s
Budget
Rate
_A
ppro
b
Pote
nt_R
ecip
ients
Rate
_P
R
Inf_
Quota
Paym
ents
Po
ten
t_R
ecip
ien
ts
Ra
te_
R
Sp
ee
d
Re
cip
ien
ts
Tim
e
Pote
nt_R
ecipient
s1
Rec
ipient
s2
020
4060
8010
0
0102030405060
12
1 2
12
12
12
12
Rat
e_RRat
e_Inp
Out
_Tim
e
Con
d_2
Don
e_In
p
Aver
_Inp
Max
Inpu
tsSa
me
Inpu
ts
Inn
ova
tio
n p
roje
cts
im
ple
me
nta
tio
n
Pra
ctica
l a
pp
rova
l o
f in
no
va
tio
n p
rod
ucts
Po
ten
tia
l re
cip
ien
tsA
pp
rob
atio
nA
ttra
ctio
n o
f im
ita
tors
Bu
dg
et o
f in
no
va
tio
n
pro
du
cts
‟ im
ple
me
nta
tio
ns
Ma
xIn
pu
tsS
am
e
Imita
tors
Re
cip
ien
ts
Co
nd
_2
Ou
t_tim
e
Ave
r_In
p Ra
te_
Inp
Ra
te_
R
Po
ten
tia
l re
cip
ien
ts
Ra
te_P
R Re
c_
pe
r_L
imit
Lim
it_re
cip
International Journal of Economics, Commerce and Management, UK
Licensed under Creative Common Page 7
Figure 3 represents the diagram of the model of innovation products' diffusion, built in the
application program package PowerSim. The diagram of the model is represented in symbols of
system dynamics.
System dynamics software PowerSim‟ descriptions are as follows:
An initialization link (init) – provides start-up (initial) information to variables (both auxiliaries and
levels) about the value of other variables. In other words, the initial value of a level or constant
auxiliary;
A flow – represents the movement of commodities in and out of stocks, it can be considered to
be a „pipe‟. In other words, a flow is the rate of changes of a stock;
An auxiliary (aux) – is used to combine or reformulate information. It is an algebraic
computation of any combination of levels, flow rates or other auxiliaries
A constant (const) – is defined by an initial value and maintains this value throughout the
simulation, unless user changes the value manually. In other words, a constant value allows for
data input.
First of all, it is necessary to specify the name of the variable model and after "equal" -
the equation of its calculation.
The total number of completed approbation:
flow Approbation = + dt*Rate_Approb.
The budget allocated for testing and correcting defects and errors in innovation products:
flow Budget = - dt*Payments.
The total number of imitators throughout the life cycle of innovation products:
flow Imitators = + dt*Rate_Imitators.
The number of outstanding implementations:
flow Inputs = - dt*Done_Inp+dt*Rate_Inp.
The number of consumers who have purchased innovative products:
flow Recipients = + dt*Rate_R.
The number of completed projects of implementation the innovation products:
aux Done_Inp = IF(ABS(Inputs)>Out_Time,Out_Time,ABS(Inputs)).
The expenditure on testing the innovation products:
aux Payments = IF(Budget<=Debts,0,1)*Approb_Costs+InfIntens_Costs.
The rate of increase of approbations the innovation products:
aux Rate_Approb = DELAYMTR(Rate_Imitators, Period_Approb,3)*
*IF(Budget <= Debts, 0, 1).
The time of attracting the imitators to testing the innovation products:
aux Rate_Imitators = DELAYINF(MinImit, Time_Search, 3)*IF(Budget<=Debts, 0, 1).
The rate of increase the implementations of innovation products:
© Kravchenko
Licensed under Creative Common Page 8
aux Rate_Inp = Rate_R*Aver_Inp.
The pace of the transition from a group of potential consumers of innovation products to the
group of real consumers:
aux Rate_R = Speed*Potent_Recipients.
The cost for approbation the innovation products:
aux Approb_Costs = (Approbation - DELAYPPL(Approbation, 1, 0))*Approb_Value.
The company-producer of innovation products cannot synchronously realize more than the
maximum possible number of innovative projects:
aux Cond_2 = IF(ABS(Inputs) >MaxInputsSame, MaxInputsSame,
MAX(0,ABS(Inputs))).
The intensity of informing consumers of innovation products:
aux InfIntens_Costs = Budget*Inf_Quota.
Costs for increasing the intensity of informing consumers about the innovation products:
aux Inf_Intens = IF(InfIntens_Costs<=0, 0, 1/EXP(a/InfIntens_Costs)).
The number of transactions with imitators of innovation products with involving the additional
effort to their search:
aux MinImit = 1*Inf_Intens.
The time for the completing the innovation project:
aux Out_Time = DELAYPPLMTR(Cond_2, 12, 18).
The number of potential customers which know about innovation products and are interested in
buying it (equation displays exponential delay in searching the potential customers):
aux Potent_Recipients = DELAYINF(Rate_PR, 4, 2) – Recipients.
The growth rate of potential recipients' number of innovation products, depending on the
capacity of the communication channel:
aux Rate_PR = MIN(Imitators*Rec_per_Imit, Limit_Recip).
The time for attracting producer as an «imitator»:
aux Time_Search = 12 – 4.5*Inf_Intens.
The model parameters:
Approb_Value – the cost of one testing;
Aver_Inp – the average number of implementations of innovation products by one company;
Debts – the maximum level of budget gap;
Inf_Quota – the share of costs for increasing the intensity of informing consumers about the
innovation products;
Limit_Recip – the maximum number of consumers that have demonstrated the demand for
innovation products;
MaxInputsSame – the maximum number of simultaneous implementations of innovation
products;
International Journal of Economics, Commerce and Management, UK
Licensed under Creative Common Page 9
Period_Approb – the period of time for testing the innovation products on the market;
Rec_per_Imit – the average number of «potential recipients» that are informed from one imitator
in a certain period of time;
Speed – share of entities which are willing currently to begin the implementing of innovation
products;
Results of the model of diffusion the innovation products are represented in
Figure 4.
Figure 4: Dynamics of the number of potential and real
consumers of innovation products
Time
Potent_Recipients1
Recipients2
0 20 40 60 80 100
0
10
20
30
40
50
60
1 2
1
2
1
2
1
2
1
2
1
2
Dynamics of number of companies' orders for implementation the innovation products
and the number of completed orders are represented in Figure 5.
Figure 5: Dynamics of number of companies' orders for implementation the
innovation products and the number of completed orders
Time
Done_Inp1
Inputs2
0 20 40 60 80 100
0
5
10
15
1 2
1
2
1
2
1 2 1 2 1
Thus the simulation model of innovation products' diffusion allows estimating the range and
speed of innovative products‟ diffusion.
© Kravchenko
Licensed under Creative Common Page 10
Based on a series of simulation experiments, we believe that improving the efficiency of
innovation products' promotion and distribution should be based on the application of project-
based approach.
Each project is a series of logically ordered steps, which are also have all the features of
the project (the target settings, time and financial restrictions, criteria and indicators for the
effectiveness).
Figure 6 illustrates the graphs of the number of consumer groups of two consecutive
innovative projects. The number of consumers of "mature" innovation products increases in
period T1 within their life cycle up to 1 due to transition of potential consumers to the category
of real consumers.
Figure 6: Graphs of changes in the number of innovation products and consumer's groups
1. Consumers of "mature"
innovation products 2. Potential consumers 3. Real consumers
International Journal of Economics, Commerce and Management, UK
Licensed under Creative Common Page 11
The end of the life cycle of innovation products reduces to decreasing of consumers‟ loyalty to
these products and as a result to declining the number of real consumers of innovation products
(period T3).
The point 0 is the start of implementation of new innovation project with improved quality. The
duration of the first stage of new innovation project with improved quality is T2.
The point 2 imply the initiation of promotion the "new" innovation products to the market.
Market's response time on the emergence of "new" innovation products is T10. After that
the number of real consumers of "new" innovation products formed under the influence of
substitution of consumers "old" innovation products(Т4) and attraction new consumers from
potential number.
It should be noted that increasing the number of potential consumers of "new" innovation
products for the period T7 is the result of their promotion to the market.
The point of the end of the period T7 and the maximum number of potential consumers of "new"
innovation products V1 are determined by quality of "new" innovation products, customer value,
duration and effectiveness of promotion to the market, especially in period Т9 of initial
positioning of innovation products and competitive strategy. So, according to the project-based
approach to the promotion of innovation products to the market the main tasks are as follows:
Determining the start 2 and the end 4 of innovation products‟ promotion to the
market;
Maximizing the number of potential V1 and real V2 consumers of “new”
innovation products;
Prolongation the sales cycle of "new" innovation products;
Planning the sources of financing of innovation products‟ promotion to the
market;
Minimizing of periods Т7, Т9 and Т10.
As can be seen from the above the structure of planning phase of promotion of
innovation products to the market is illustrated in Figure 7.
© Kravchenko
Licensed under Creative Common Page 12
Figure 7: The structure of planning phase of promotion of innovation products to the market
Partners and
investors search
Harmonization
and coordination
their interests
Dividing and
legalization of
rights and
obligations
Establishing of
accountability
Identification of business partners
Direct methodsIndirect (reflexive)
methods
Selecting the methods of promotion the innovation products to the market
Development the strategy of pricing for innovation products
Selecting the pricing
strategy
Selecting the methods of
pricing
Testing the innovation products at the market
Simulation test on the
market Test sales
Scheduling promotion of innovation products to the market
So, a range of organizational activities implemented on the stage of promotion of innovation
products to the market and associated with scheduling and selection the methods of innovation
products' promotion to the market clearly defines subjects of promotion and facilitates the
allocation of their authorities, selects methods and limits time of promotion.
DISCUSSION
When the subjects of promotion are identified, matched their interests as well as are chosen
methods and are imposed a deadline of promotion of innovative products to the market,
producers of innovation products can move to the next stage of innovation products' promotion
to the market - drawing up the budget of the innovation products' promotion to the market.
Then they should assess the competitiveness of innovative products. If consumers'
response is positive, producers will enter into contract with them for the supply of a specific
quantity of innovation products. Beyond that, the destinations of improving the innovation
products' competitiveness due to price and non-price factors will be uncovered.
If consumers have responded not as active as it was supposed, the decision on
improvement of innovation products with a view to further promoting to the market will be
adopted.
International Journal of Economics, Commerce and Management, UK
Licensed under Creative Common Page 13
REFERENCES
Bass, F.M. (1969). A new product growth for model consumer durables. Management Science, 15, 215-227.
Charters, W.W., Pellegrin, R.S. (1972). Barriers to the Innovation Process: Four case studies of differentiated staffing. Educational Agricultural Quarterly, 9, 3-4.
Colangelo, G. (1995). Vertical vs. Horizontal integration: pre-emptive merging, The Journal of Industrial Economics, 48, 323-337.
Cooper, R.B., Zmud, R.W. (1990). Information Technology Implementation Research.A Technology Diffusion Approach. Management Science, 36 (2), 123-139.
Dean, J. (1976). Pricing policies for new products. Harvard Business Review, 54(6), 141–153.
Egorov, P., Kravchenko, T. (2008). Elements of organizational mechanism for promoting innovative products to the market. The Economy: theoretical and practical problems, 243(1), 260.
Joachimsthaler, E. (2009).To see the obvious. How to find and implement the growth strategy of the company, based on innovative products. Minsk: GrevtsovPablisher,288. Available at http://www.marketing.spb.ru/lib-mm/strategy/consumer_advantage.htm.
Kotler, P. (2002) Principles of Marketing. New Delhi: Pearson Education, 785.
Kotler, P., Keller, K. (2011) Marketing Management. New Jersey: Pearson, 816.
Kravchenko, V., Kravchenko, T. (2009).The methods of the shaping the sources of financing the promotion of innovation products to the market. The Finance, The Accounting, The Banks, 1(15),86-96.
Lovelock, C. (1994).Product Plus: How Product + Service = Competitive Advantage. USA: McGraw-Hill, 384.
Mahajan, V.,Muller, E., Bass, F. (1990).New product diffusion models in marketing.Journal of Marketing, 54(1), 1-26.
Nutley, S., Davies, H., Walter, I. (2002).Learning from the Diffusion of Innovations.Research Unit for Research Utilization Department of Management, 29.
Petrosyan, A. (2008).Product promoting methods in marketing system of industrial companies.Audit and Finance, 6.Available at http://www.auditfin.com/fin/2008/6/Petrosyn/Petrosyn% 20.pdf.
Popov, E. (2002).The products and services promotion. Moscow: Finances and Statistics, 7.
Rogers, E.M. (1995). Diffusion of innovations. New York: Free Press, 519.
Williams, F, Gibson, D.V. (1990). Technology Transfer: A Communication Perspective. London: Sage Publications,9-18.
Wolfe, R.A. (1994). Organizational innovation: review, critique and suggested research directions. Journal of Management Studies, 31(3), 405-431.