Academic journal article Issues in Informing Science & Information Technology

The Role of Warranty of Misinforming for New Product Adoption

Academic journal article Issues in Informing Science & Information Technology

The Role of Warranty of Misinforming for New Product Adoption

Article excerpt

Introduction

The current development of worldwide markets can be characterized with an increasing complexity and multi-functionality of their goods. Smart phones replaced the old-fashion mobile devices, which very recently replaced the traditional land phones. Selection, purchasing and utilization of a new device are no longer simple, routine tasks. The increased product complexity requires relevant customer expertise to make proper use of modern devices. The adoption process of new products has attracted the attention of several researchers and it has been studied from different perspectives. Eng and Quaia (2009) review the findings about new performance in the literature and conceptualize a framework and its related propositions for improving new product adoption process. Manchanda, Xie, and Youn (2009) identify that the two main influences leading to adoption at the individual consumer level are marketing communication and interpersonal communication. Bhagat, Goyal, and Lakshmanan (2012) present a problem formulation to study the impact of user's experience (or projected experience) with a product in the adoption process. Sethi, Prasad, and He (2008) propose a model for new-product adoption that incorporates price and advertising effects. An optimal control problem that uses the model as its dynamics is solved explicitly to obtain the optimal price and advertising effort over time. Parry, Cao, and Song (2011) deal with forecasting the adoption of innovative products. They examine the usefulness of a probabilistic neural network algorithm for forecasting new product adoption and compare their approach with the standard forecasting methods. Devos, Van Landeghem, and Deschoolmeester (2012) consider the problem of small-and medium-sized enterprises with their lack of IT proficiency and dependence on external IT expertise, and the role of information asymmetry in the acquisition of strategic IT.

Also, the increased complexity and multi-functionality of the products lead to an increased level of information asymmetry during the purchasing process, which may mislead customers in their purchase decision making. Often, the customer buys a product, which he/she doesn't need or pays for product features that are not needed and will never be used. On the other hand, new devices provide not only challenges, but also opportunities for extending the set of problems the customer may wish to solve with. Nowadays, every purchase of a new product requires making decision under uncertainty.

This risk--the risk of misinforming, caused by the information asymmetry, is based on the inability of the customers to acquire complete, accurate, and sufficient understanding regarding the features and constraints of a new product. This paper discusses the role the warranty, especially the warranty of misinforming, may play not only in making purchase decision, but also in the process of product utilization.

We investigate the role of warranty of misinforming in an "ideal" case, when the consumer optimizes the purchase decision led by rational assessment of his/her needs, product's price and some supplementary costs. Also, in this "ideal" case, we consider the product's quality to be positively correlated with the product's price. Under these assumptions, the role of warranty during product adoption process is discussed by addressing the following questions:

* What are the misinforming risks and how the warranty of misinforming may affect the adoption process?

* How such risks can be quantified, so to allow proper justification of the product warranty?

* What is the adoption cost and how to optimize the adoption process based on this cost?

The paper is organized in four sections. We start with describing the framework of this study. The second section discusses the role of warranty during the acquiring phase and the third section addresses the utilization phase. The fourth section defines measures for quantifying the cost of adoption, and presents a formulation of an optimization problem reflecting the tradeoff between quality and price in a new product purchase decision making process. …

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