Strategic Modelling and Business Dynamics: A Feedback Systems Approach

6.2. The Bass Model – An Elegant Special Case of a Diffusion Model

The Bass model offers a particular view of a socially-driven adoption process and elegant algebraic formulations with which to express a 'theory' or dynamic hypothesis for growth and saturation. Developed by Frank Bass, the model was first published in Management Science in 1969. The article has since been voted among the top 10 most influential papers by INFORMS (Institute for Operations Research and the Management Sciences) members. Figure 6.3 shows how the principal influences on adoption are operationalised.^[] Essentially, it is a contagion model. Adopters 'infect' potential adopters through word-of-mouth thereby causing them to adopt. Note there is no influence whatever from the innovating firm on the adoption rate. In the full Bass model, this stark assumption is relaxed, but for now let's concentrate on the structure and formulation of contagion. There are two interacting feedback loops – a positive reinforcing loop representing word-of-mouth and a balancing loop representing market saturation. The more adopters, the greater the adoption from word-of-mouth. This contagion is limited as the number of potential adopters falls (since each new adopter comes from the pool of potential adopters and people are conserved!!). A contagion model is a good way to capture the interplay of word-of-mouth and market saturation. Adoption from word-of-mouth is a function both of adopters and potential adopters. The contact ...