Transient dynamics in trial-offer markets with social influence: Trade-offs between appeal and quality.

Abstract

We study a trial-offer market where consumers may purchase one of two competing products. Consumer preferences are affected by the products quality, their appeal, and their popularity. While the asymptotic convergence or stationary states of these, and related dynamical systems, has been vastly studied, the literature regarding the transitory dynamics remains surprisingly sparse. To fill this gap, we derive a system of Ordinary Differential Equations, which is solved exactly to gain insight into the roles played by product qualities and appeals in the market behavior. We observe a logarithmic tradeoff between quality and appeal for medium and long-term marketing strategies: The expected market shares remain constant if a decrease in quality is followed by an exponential increase in the product appeal. However, for short time horizons, the trade-off is linear. Finally, we study the variability of the dynamics through Monte Carlo simulations and discover that low appeals may result in high levels of variability. The model results suggest effective marketing strategies for short and long time horizons and emphasize the significance of advertising early in the market life to increase sales and predictability.