The Bass Diffusion Model

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The Bass Model was developed by Frank Bass and describesBass Formula the process of how new products and services are adopted as an interaction between users and potential users. The Bass Model has been described as the most famous empirical generalization in marketing, along with the Dirichlet, and is among the most cited published works. The Bass diffusion is a Ricatti equation with constant coefficients.

The probability of adopting by those who have not yet adopted is a linear function of those who had previously adopted.

Frank Bass

The Bass Diffusion Model Explained

The Bass diffusion describes the process of how new products get adopted as an interaction between users and potential users. The Bass model is conletely determined by 3 parameters; Advertising Effect, Worf-of-Mouth Effect, and the Ultimate Market Potential.

The Bass model is in the class of S-Curve models (depending on the parameters the bass curve may not be S shaped but typically is).

The values for Advertising Effect should be between 0 and 1. The average value of the Advertising Effect has been found to be 0.03, and is often less than 0.01.

The values for Word-of-Mouth Effect should be between 0 and 1. The average value of the Word-of-Mouth has been found to be 0.38, with a typical range between 0.3 and 0.5.

The Advertising Effect parameter influences the early growth rate. Basically the higher the Advertising Effect the greater the initial growth rate. This refelct what could be call the Madison Avenue strategy with large advertising expenditures.

The Word-of-Mouth Effect tend to affect later growth rate after the number of subscribers has reached a tipping point.

Growth Model

Each product must be assigned a growth model that determines the monthly revenue flows for the term of the project. When you click the Product Growth Model button the Select Growth Model popup is displayed.

The Kwipoo Business Plan Modeling Tool includes 3 product growth forecasting models each capable of forecasting product revenue and subscription adoption quantities for a specified period of time. The 3 forecasting models are Exponential, The Bass Diffusion Model, and The Dirichlet.

To define a growth model for the product choose the growth model and click OK. Image to the left of the options show a stylized image of what the growth model curve resembles.

References

  1. Bass, Frank M. 1963. “A Dynamic Model of Market Share and Sales Behavior,” Frank M. Bass, Proceedings, Winter Conference American Marketing Association, Chicago, IL, (Bass Model section starts on page 269).
  2. Bass, Frank M. 1963. “A Dynamic Model of Market Share and Sales Behavior,” Frank M. Bass, Proceedings, Winter Conference American Marketing Association, Chicago, IL, (Bass Model section starts on page 269).
  3. Bass, Frank M. 2004. Comments on “A new product growth for model consumer durables.” Management Science.
  4. Rogers, Everett M. 1962. Diffusion of innovations. New York: The Free Press.