New product diffusion models in innovation management – a system dynamics perspective

The diffusion of innovations over time is a highly dynamic and complex problem. It is influenced by various factors like price, advertising, and product capabilities. Traditional models of innovation diffusion ignore the complexity underlying the process of diffusion. Their aim is normative decision support, but these models do not appropriately represent the structural fundamentals of the problem. The use of the system dynamics methodology allows the development of more complex models to investigate the process of innovation diffusion. These models can enhance insight in the problem structure and increase understanding of the complexity and the dynamics caused by the influencing elements. This article shows how the traditional innovation models can be extended to incorporate competition and to map the process of substitution among successive product generations. Several model simulations show the potential of using system dynamics as the modeling methodology in the field of new product diffusion models.