Predicting the diffusion of LCD TVs by incorporating price in the extended Gompertz model

Abstract

In addition to reflecting how price decline stimulates consumption behavior, an effective diffusion model of liquid crystal display televisions (LCD TVs) featured by coexistence of multi-generational LCD TVs could also forecast accurately LCD TV sales under a market segmentation framework. As technological advances have led to a substantial decline in the price of LCD TVs, the diffusive prediction of LCD TVs based on prior conventional models, which neglect how price affects the LCD diffusions, must be biased. Based on anchoring and adjustment theory, this work develops extended Gompertz models that incorporate the consumers' comparison of the initial prices with the later reduced prices to analyze the purchasing decisions of consumers for various sized LCD TVs from psychological perspectives. The effective ranges of market penetration rate are located under which the estimated parameters conform to the theoretical assumptions of product diffusion. Their forecasting accuracy is examined by further comparing prediction errors of the conventional Gompertz model and the extended Gompertz model. Empirical results indicate a significantly positive correlation between price reduction and LCD TV sales. Additionally, the market penetration rate is higher for smaller-sized LCD TVs than for larger-sized ones, implying that smaller-sized LCD TVs have reached market saturation, while larger-sized LCD TVs still have remaining market potential. Furthermore, the comparison results demonstrate that the effectiveness of the extended Gompertz model in predicting future shipment orbits of LCD TVs is superior to that of the conventional Gompertz model, since the extended model incorporates price factors. (C) 2012 Elsevier Inc. All rights reserved.