SCHEDULING AND SELECTING THE METHODS OF INNOVATION ...ijecm.co.uk/wp-content/uploads/2014/04/247.pdf · SCHEDULING AND SELECTING THE METHODS OF INNOVATION PRODUCTS' PROMOTION TO THE

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

[email protected]

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.

http://ijecm.co.uk/

© Kravchenko


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


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


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

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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

+

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Number of potential

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+

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-

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+

+

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innovation

products

-

-

+

-

- -

+

Period of

innovation

product’s sale

+

Capacity of

communication

channel

+

+

+

© Kravchenko


Figure 3: Diagram of the model of innovation products' diffusion in the application program

package PowerSim

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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


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


MaxInputsSame – the maximum number of simultaneous implementations of innovation

products;



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


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



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”


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


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.



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