Agent-based stimulating diffusion of green products. Behavioural characteristics of consumers and firms


Seminar Paper, 2013

32 Pages, Grade: 2


Excerpt

Table of content

ABSTRACT

1. INTRODUCTION

2. BACKGROUND
2.1. GREEN PRODUCTS
2.2. EUROPEAN ENVIRONMENTAL POLICIES AND STATISTICS
2.3. TRANSITION FROM INDUSTRIAL TO SERVICE ECONOMY
2.3.1. Consumer behaviour
2.3.2. Lock-in effects
2.3.3. Governmental strategies
2.3.4. Diffusion dynamics

3. DESCRIPTION AND OBJECTIVES

4. METHODOLOGY APPLIED
4.1. AGENT-BASED SIMULATIONS
4.2. SENSITIVITY ANALYSIS

5. THE SIMULATION MODEL OF CO-EVOLVING FIRMS AND CONSUMERS
5.1. MODEL STRUCTURE
5.1.1. Simulation of firm behaviour (nF)
5.1.2. Simulation of consumer behaviour (nC)

6. RESULTS OF THE MODEL EXPERIMENTS
6.1. FIXED PRODUCT RANGE
6.2. DEVELOPMENT OF PRODUCTS
6.3. SENSITIVITY ANALYSIS

7. SIMILAR STUDIES
7.1. OVERVIEW OF SIMILAR STUDIES
7.2. METHODOLOGY USED IN SIMILAR STUDIES

8. CONCLUSION

Illustration register

FIGURE 1: THE NETWORK EFFECT

FIGURE 2: S-SHAPED CURVE OF INNOVATION DIFFUSION

FIGURE 3: ADOPTER CATEGORIZATION ON THE BASIS OF INNOVATIVENESS

FIGURE 4: CHAIN OF ACTIONS FOR PRODUCTS, WHICH ARE SOLD AND LEASED

FIGURE 5: DIFFUSION OF GREEN PRODUCTS IN THE FIXED PRODUCT RANGE SCENARIO

FIGURE 6: MATERIAL INPUT IN THE FIXED PRODUCT RANGE SCENARIO

FIGURE 7: DIFFUSION OF GREEN PRODUCTS IN THE DEVELOPMENT OF PRODUCTS SCENARIO

FIGURE 8: TAX IMPACT ON GREEN PRODUCT DIFFUSION

Abbreviation register

Abbildung in dieser Leseprobe nicht enthalten

Abstract

The following paper focuses on the agent-based simulation of the diffusion process for green products, i.e. environmentally friendly products that are gaining in importance during the last years. As a basis the article written by Janssen and Jager (2002) is being examined and described in detail. It works with simulating both consumers and firms, whose behavioural characteristics are different and play a significant role in the diffusion process. On the one hand the behavioural characteristics, social processing and status seeking of the consumers and on the other hand the flexibility of firms concerning the adaptation to new technologies is being modelled. The aim of the study is to show how these behavioural characteristics influence the diffusion process, where the most interesting result has shown that the adaptation of firms to new technologies has a significant impact on group of consumers adapting the green innovation in an early phase. The results also revealed that the diffusion process is faster for deliberate consumers in markets with no adaptability to new technologies than in markets where the adaptation takes place. (Janssen and Jager 2002, p. 283; Kiesling et al. 2012, p. 215) Moreover the paper also gives an overview about similar studies conducted in the field of agent-based simulations of diffusion processes. Finally these studies are critically compared with the basic article in order to come up with further research possibilities. These include incorporating the effects of marketing activities and the use of strategies appealing to environmental consciousness on the diffusion process as well as studying the phenomenon of overadoption of an innovation.

1. Introduction

The pollution of the environment associated with global warming and the consumption of scarce resources present the most serious political and environmental topics as well as threats of this century. Looking towards a more sustainable economy it will be of crucial importance to reduce the amount of materials the companies use and find ways in order to maximize their utilisation. (Stahel 1994, p. 178-190) One of these possibilities is to start producing and buying green - environmentally friendly - products that can be easily re-manufactured so as to prolong their product life cycle. (Janssen and Jager 2002, p. 284)

The paper “Stimulating diffusion of green products. Co-evolution between firms and consumers”, written by Janssen and Jager (2002), presents a model-based analysis of the introduction of green products. The differences in the behavioural characteristics of firms and consumers influence their willingness or preparedness to switch to green consumption. The relevance of social processing and status seeking in the diffusion processes is pointed out in this model. (Janssen and Jager 2002, p. 283-306)

Starting with some background information, the most important implications responsible for the buying behaviour of consumers, such as social networks, lock-in effects and the dynamics of the diffusion process will be discussed. In the next sections the simulation model, the results of the model experiments and the sensitivity analysis will be presented. Furthermore the paper with its methodology will be compared to similar studies, criticised and further research possibilities will be pointed out.

2. Background

2.1. Green products

Today, many products are designed regardless their environmental impact. In order to protect and minimize the pollution of the environment, there exist special governmental regulations that influence the design process by imposing external constraints, e.g. auto emissions standards. The so-called „green products“ are environmentally friendly products and the phrase „green design“ emphasizes something qualitatively different. By designing green products, the environmental characteristics are treated as objectives rather than constraints. As well as this, another aim is to produce green products with the comparative functionality, quality and performance as the non-green products. There exist two main goals the green design is aiming to meet: waste prevention and better material management. While waste prevention is about activities that avoid the generation of waste, the activity of material management is concerned with actions that make it possible for materials to be recovered or reused in their highest value-added application. “Light-weighting” is one possible example of waste management and it is about using less material to administer the same function. Better material management is for example designing products that can be easily disassembled into constituent materials. (Eyring 1992, p. 6-7)

2.2. European environmental policies and statistics

The Institute for European Environmental Policy (hereafter IEEP) is the central European institution arching over environmental topics and policies mainly in Europe. The institution provides help to organizations confronted with environmental issues and undertakes also analyses and research in this field in order to help on both short-term and long-term basis. IEEP consists today of nine research areas. One of them includes resource use, waste and chemicals, which is also discussed in the study of Janssen and Jager (2002) and underlines the importance of this environmental problem. (Institute for European Environmental Policy, 2010)

The current environmental issues together with activities of European institutions, policies, but also non-governmental organizations are increasing the environmental awareness and actions towards a sustainable community in the EU. The average recycling rates of the EU increased from 54,60% in 2005 to 63,3% in 2010. (Eurostat 2013) Germany is seen as a positive example concerning the development of environmental sector. During the years 2005-2007 it could achieve an annual growth rate of 29% in using renewable energy, 20% in achieving energy efficiency and 21% of using eco-efficient materials. (Jänicke 2012, p. 14) Also Austria is intensively investing in the environmental protection. Both environmental investments and purchasing ecological products are increasing gradually. (Statistik Austria 2012)

2.3. Transition from industrial to service economy

As the current industrial economy is more oriented on consumption of materials the transition towards service economy will be necessary so as to reduce the negative environmental impacts. The service economy is expected to be less material intensive regarding the satisfaction of consumer needs than the industrial economy. (Ehrenfeld 1997 quoted in Janssen and Jager 2002, p. 284) The key difference between the two economies lies in the diverse values. While the industrial economy gives value to products that exist materially, for the service economy the performance and the real utilization of goods integrated into a system is relevant. (Stahel 1994, p. 178) However, the switch from one economy to another requires crucial changes in consumer behaviour. (Janssen and Jager 2002, p. 284)

2.3.1. Consumer behaviour

Consumer behaviour is a process consisting of elements that influence the consumer before, during and after the purchase decision. (Mooij 2011, p. 20) This is generally speaking a very wide and complex field of study with an interdisciplinary character from diverse disciplines such as psychology, sociology, social anthropology, economics and so forth. A number of different theories regarding consumer behaviour have been developed, justified or rejected in the last decades, e.g. The Economic Model, The Psychological Model, The Psychoanalytic Model, The Cognitive Theory, Sociological Model, etc. (Naik 1999, p. 5-23) Some general ideas of the above mentioned models are also discussed in the paper from Janssen and Jager (2002).

In general, there exist a number of ways how to produce more environmentally friendly products that require less material and energy inputs by simply changing the design of the concrete product. However, the most important challenge lies in convincing the consumers to switch to this new, e.g. “green”, offer. The consumer specific behaviour and factors, such as “lock-in” effects and social needs may be responsible for the launch failure of green products. According to the Sociological Model introduced by the social theorist Thorstein Veblen in the 19th century, the buyer behaviour of various goods and services is strongly influenced by group norms of the group the individual belongs or aspires to belong. (Naik 1999, p. 12) Neighbours usually tend to be very similar to each other in terms of education, income and the standard of living. Because of this fact, consumers are often involved in a social comparison with their neighbours that they like also to imitate. They use social comparison to evaluate their own happiness. (Sirgy 2001, p. 50)

The imitation and the social comparison processes are only some of the reasons why people decide to switch or to not switch to new products. Another important factor affecting the innovation diffusion is the so-called “lock-in” effect.

2.3.2. Lock-in effects

Although the new products may be more efficient, technically superior and state-of-the-art than the older ones, they often do not obtain a significant market share and fail. This consequence may be a result of being locked-in. A lock-in is “a situation in which a special product, strategy or technology dominates and from which it is impossible or very difficult to escape because of increasing returns to scale”. (Bergh et al. 2007, p. 169) The more people are buying a product, the lower are the production costs and the more affordable it becomes.

This effect can be found in markets with high fixed and low variable costs, such as software companies. (Shapiro and Varian 1998 quoted in Janssen and Jager 2002, p. 285) As well as this, the higher the number of users the higher the value of the product. This simple function is called the “Network effect”. (Janssen and Jager 2002, p. 285)

Figure 1: The Network Effect

Abbildung in dieser Leseprobe nicht enthalten

Source: Bishop 2010

As well as this, the lock-in situation makes it impossible to introduce an alternative technology, product or strategy. Some of the well-known examples are the QWERTY keyboard or the Microsoft Windows. (David 1985 quoted in Janssen and Jager 2002, p. 285) Although there could be produced more ergonomically efficient alternatives, the consumers would not accept the new products because of the high switching costs. The consumers would need to get used to the new product and learn how it operates. To sum up, the limited compatibility is the main reason why it is so complex for new producers to hold or extend their market share. (Janssen and Jager 2002, p. 285)

2.3.3. Governmental strategies

As the changes of consumer patterns are often slow, the government may adopt some strategies in order to speed up the process of the diffusion of the new green products. One of the well-known strategies is the taxation of the non-environmentally friendly products, the non-green products. In that way, many of the consumers switch to green products because of the price increase of non-green products. As it will be presented later in the model results, the satisfied consumers which feel that the products are adapted to their individual needs persist in buying non-green products till they are not produced any more. (Janssen and Jager 2002, p. 284)

It is obvious, that the innovative producers may face a big challenge in introducing the new state-of-the-art, more ecological and efficient products on the market and trying to increase their market shares, since there are many factors influencing the buying decision of the potential consumers. Furthermore, it is crucial for producers or for governmental institutions following some economical or ecological goal to know, how the process of the diffusion of innovations normally looks like and what are the possible threats one needs to be aware of. The concrete phases of the diffusion process are naturally relevant for marketers so as to come up with special promotional activities to speed up the process.

2.3.4. Diffusion dynamics

The process of the innovation diffusion is a widely studied phenomenon. According to the „Innovation diffusion theory” introduced by Rogers (1962), the cumulative number of adopters of the innovation usually follows an S-shaped curve.

The S-curve begins to rise at a slow pace after the first adopters buy the innovative product. Early adopters make the S-curve climb faster. However, the steepest increase in the rate of adopters happens after the groups of Early and Late majority adopt the innovation. Finally, the curve continues to rise slowly, when the last group, the laggards, decide to accept the innovation as well. (Janssen and Jager 2002, p. 286)

Figure 2: S-shaped curve of innovation diffusion

Abbildung in dieser Leseprobe nicht enthalten

Source: Own representation with reference to Lamer 2007, p. 23

Each group from the social system is characterized through different features. For example, the innovators are known for their venturesomeness thus coping with a high degree of uncertainty. The group of innovators plays a significant role in the diffusion process because of introducing the new idea or concept into the system from outside. The most important group as far as the opinion leadership is concerned are the early adopters. They act as role models for other members of the social system. Furthermore the early adopter reduces the uncertainty connected with the innovation by adopting it. The early majority is a deliberate group of consumers. This group holds an exceptional position between the very early and the very late adopters making them a notable link in the diffusion process. In addition to that, the early majority together with the late majority are the most numerous adopter categories including one third of the members of the system each. Moving on to the late majority, this group is often sceptical about the innovation and these consumers switch to the innovation only because of the economic necessity or group pressure. The last group of the social system, the laggards, are traditional and suspicious of innovations and they may be avoiding the innovation because of their rational reasons. (Rogers 1995, p. 263-266)

Figure 3: Adopter Categorization on the Basis of Innovativeness

Abbildung in dieser Leseprobe nicht enthalten

Source: Own representation with reference to Rogers 1995, p. 262

To sum up, the groups of early adopters compared to the late adopters weight their personal needs more, have higher aspiration level, search actively for information and are better in dealing with uncertainty. For producers willing to sell their innovations, it is very important that some „critical mass“ of adopters has been reached and that there are enough role models switching to the new products. In that case, the innovation will diffuse without much stimulation especially between people that are uncertain and engage in imitation and social comparison. (Jager 2000 quoted in Janssen and Jager 2002, p. 286) Obviously, the decision process of consumers is a critical element in the process of the any innovation diffusion. (Janssen and Jager 2002, p. 287)

There are a couple of factors having influence on the speed and the level to which the innovation diffuses, i.e. the slope of the S-curve. Factors such as the relative advantage (+), the compatibility (+), the complexity (-), the triability (+) and the observability (+) of the innovation influence the diffusion process either positively or negatively (see +, - signs). (Rogers (1995), p. 206)

3. Description and objectives

The main research objective of the study „Stimulating diffusion of green products“ by Janssen and Jager was to analyse under which conditions the environmentally friendly - green - products can be successfully introduced. The simulation model used by the authors aims to find out how some aspects in the decision making process of consumers and companies influence the innovation diffusion dynamics of green products and how financial strategies may interfere with these dynamics. Furthermore, another objective was to investigate what the effects of imposing a tax on non-green products would have on the co-evolution between consumers and firms. (Janssen and Jager 2002, p. 283-306)

4. Methodology applied

In the examined study the methodology applied includes agent-based model simulation, which provides a basis for conducting a sensitivity analysis.

4.1. Agent-based simulations

Agent-based simulations have gained importance and popularity during recent years because of their ability to deal with customer’s heterogeneity, social interactions and processes. They are suitable for asking what-if questions and thus can be applied for analysing and simulating real-world problems. Besides of this they are helpful tools for management when dealing with decisions. Creating agent-based simulations can increase the success of introducing an innovation and help a company to ensure a long-term leading market position. (Kiesling et al. 2012, p. 183-184) Their application happens on a micro-level taking into account individuals, e.g. customers, and their needs, e.g. purchases. (Günther et al. 2011, p. 12-13) Choices on the micro-level tend to have an impact on the macro-level, in this case the diffusion of a specific product or technology.

[...]

Excerpt out of 32 pages

Details

Title
Agent-based stimulating diffusion of green products. Behavioural characteristics of consumers and firms
College
University of Vienna  (Institut für Betriebswirtschaftslehre)
Course
Recent Developments in Innovation and Technology Management
Grade
2
Authors
Year
2013
Pages
32
Catalog Number
V340146
ISBN (eBook)
9783668298842
ISBN (Book)
9783668298859
File size
1148 KB
Language
English
Tags
agent-based, behavioural
Quote paper
Alexandra Barokova (Author)Miroslava Jergušová (Author), 2013, Agent-based stimulating diffusion of green products. Behavioural characteristics of consumers and firms, Munich, GRIN Verlag, https://www.grin.com/document/340146

Comments

  • No comments yet.
Read the ebook
Title: Agent-based stimulating diffusion of green products. Behavioural characteristics of consumers and firms



Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free