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Assignment 2 System Dynamics
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Modeling Product Adoption and Diffusion: The VCR Market
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System DynamicsAssignment 2
Wietske Anema (S3971317), Britt van der Knaap (S4092546) Arjan van der Laan (S3515052)
B2. Growth of population
, C3:
Parameter (Units) Estimated Comment
value
Advertising Effectiveness, 0.0018 The value of advertising effectiveness is estimated to
(1/year) be relatively low. Therefore, we think this value
should increase.
Adoption Fraction, i 0.0085 The adoption fraction can be seen as a percentage of
(dimensionless) the potential buyers. A value of 0.0085 for adoption
fraction is high. We think this value is reasonable for
the reason that new products which are innovative are
always attractive to buy.
Reference Price ($/Unit) 2425 The reference price can be seen as the maximum price
(Price at which fraction for which people are willing to buy the product
willing to adopt = 0) (adoption rate is equal to zero). We think the
estimated price is reasonable. The price for a VCR
should not be higher than 2425 dollar. Compared to
the prices of other products this will be to high.
Useful Life of Product 7.75 According to the estimated value, the product will be
(years) useful for 7.75 years. We think this value is
reasonable. According to the background information
innovation was increasing. Therefore, after 7.75 year
people will be interested in buying new developed
products.
Cost Reduction per 0.09 A cost reduction per doubling the experience value of
Doubling of Experience 0.09 is reasonable to us. If the experience is doubled,
(dimentioness) the cost experience will be 0.09 times the initial value.
Initial Experience (units) 550 The value for initial experience is estimated to 550
units. The company should produce and tests 550
units. Since we do not have any other data, we can not
conclude if this value is reasonable or not.
At the start, the company was developing the product. Therefore, the price of the product was high. As
a result, the sales, adoption fraction and fraction willing to adopt were low. By the time more people
were familiar with the production and the sales were increasing. The industry took off so quickly as
the number of potential buyers was increasing rapidly. By producing more products, the prices could
be kept low. By reducing the prices, the sales increased. The peak in sales in 1986 can be explained by
the fact that there was a sudden increase in adoption fraction. In 1986 the value of the increase of the
adoption fraction was almost equal to zero. As a consequence, sales started to fall as well. According
to the graphs, the price influenced the other variables. By decreasing the price, the sales, adoption
fraction and fraction willing to adopt were increasing. This fall continued until 1990. By this time the
products were no longer “new” and could be considered outdated. People were interested in buying
newer products with more developed features. The number of adopters increases and the sales started
to increase again.
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