Professors from Seoul National University and Stanford University performed a regression analysis of the factors influencing the length of time that 123 Palm Pilot owners used their devices before purchasing upgrades. They found the following factors reduced the wait:
- Whether or not the PDA was a gift
- The proportion of peers with PDAs
- The relative advantages of the new version
- The cost of repair
The following factors were related to the Palm owners waiting longer before purchasing an upgrade:
- The rate at which technical improvement were being made
- The psychological cost
- The financial cost
- The speed of their first adoption of the PDA
The results raise several questions:
- Why would receiving the PDA as a gift reduce the repurchase time? One suggested reason is the "novelty effect" whereby the receiver would become fascinated with a product introduced as a gift. Another likely explanation is that the initial gift, while seeming useful, served mostly to show the possibilities, while not adequately addressing the real needs of the receiver. Intrigued, the receiver might decide to purchase the model that meets his or her needs more fully.
- Why would the technical improvement rate increase the time between purchases? One possible answer is economic incentive: clients may realize that by waiting they get more features for the same amount of money.
How can innovative companies take advantage of studies such as this one?
- Understand the relative utility of the findings - unlike previous studies of replacement repurchase behaviour focusing on durable electronics such as refrigerators, this study is particularly relevant to companies dealing in innovative products in the tech sector which are purchased on a discretionary basis for personal reasons. Such products include PDAs, software, personal computers, cameras, and cell phones.
- Compensate for factors that increase repurchase time. For instance, to compensate for a high technical improvement rate, develop economic incentives for early adoption including a cleaner upgrade path, time-limited upgrade deals, etc. Compensate for psychological cost by giving a trade-in value for older models/versions.
- Maximize the factors that reduce repurchase time. For instance, donate trade-ins to students, schools or small business owners, not necessarily with the altruistic motives of doing good, but to gain future customers for a relatively low cost.
The high-level lesson behind studies of this kind lies in that it is possible to determine which factors influence the rate of profitable events occurring. By evolving strategies based on an understanding of the results of such studies, high tech companies can optimize their behaviours to maximize profits from new products and version upgrades.
