Alexander Graham Bell at the opening of the long-distance line from New York to Chicago, 1892 (Courtesy: Library of Congress)
Ideas for Leaders #502

Incentivizing Older Consumers to Adopt New Technologies

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Key Concept

Companies traditionally ignore older consumers when marketing new technologies and innovations. While the non-monetary adoption costs to older consumers are high as previous research suggests, a new mathematical model — that looks at consumers over their entire lifecycle — reveals that monetary costs to older consumers actually decrease with age. 

Idea Summary

Companies marketing a new innovation or a new technology are rarely interested in older consumers, and for good reason. Past research shows that older consumers are much less likely to adopt new technologies or innovative products than younger consumers. The most common reasons given for this reticence are that older consumers have a psychological barrier that keeps them away from unfamiliar innovations and/or they find the innovation difficult to learn — in short, they are unwilling and/or unable to learn.

Past research, however, is based on a static measurement of adoption costs and benefits. That is, consumers are assumed to be considering the benefit of the new technology versus the costs of adopting the new technology at a single point in time. In truth, however, consumers are more forward-looking, considering the costs and benefits over time, that is, for as long as they are using the new product.

A sophisticated new mathematical model, using extensive data related to the adoption of ATM cards in Italy, tracks adoption costs and benefits by age; however, the model is built on the concept of costs and benefits over the lifetime of the consumer, not at one static period of time. The results are surprising: the costs of adopting a new technology does not rise for older people — those over 50 — but actually stays flat through the years after adoption. Thus, the cost of adopting new technology for a 50-year-old, who might be using the technology for 30 more years, and a 75-year-old, who might use the technology for five more years, is about the same, when the full life cycle of the consumer is taken into account.

At first glance, it may seem that the new research rejects past conclusions on the relationship between consumer age and adoption of new technologies. Splitting the adoption costs between monetary and non-monetary costs, however, shows that the results are consistent with past results: Older consumers do find new technologies difficult to master and are not psychologically prepared to explore new innovations.

These are specifically non-monetary adoption costs, however. What about the monetary adoption costs?

This is where the new research diverges from the past. When consumer lifecycle is factored into the monetary cost calculations, the results show that, with age, the monetary costs decline. For example, in the case of the ATMs, the adoption costs include annual fees; older consumers will have much lower costs tied to the adoption of ATM cards simply because there are far few years of fees to be paid.

In short, for consumers over 50, the steady increase in non-monetary costs (consumers become more unwilling and unable to try new technologies with age) is counterbalanced by the simultaneous decrease in monetary costs over time. The result: overall flat adoptions costs for consumers over 50. 

Business Application

The implications of the research begin with changing the assumptions of companies that might dismiss older consumers as unwilling and unable to adopt new technologies. While these non-monetary barriers to adoption are real, if companies successfully make a monetary case for adoption, they will be able to attract older consumers to the new technology or innovation.

The researchers analysed a promotion campaign for attracting older consumers to the innovation in question (using ATM machines instead of bank tellers). The promotion involved giving consumers 50-and-older (note that Italians retire at 50) a €50 sign-up bonus after the first use of the card.

This promotion could be implemented in one of two ways: either the promotion was temporary (a limited-time offer that required quick action), or the promotion was permanent, with no expiration date. The analysis showed that the temporary promotion was more effective in attracting new consumers 50-and-over. One problem with the permanent promotion was that it encouraged procrastination; since consumers knew the promotion would be around a while, they were in no hurry to sign up. The permanent promotion did attract new consumers — the adoption rate of new consumers between the ages of 50 and 65 increased about 32% — but this was significantly lower than the 66% increase in the adoption rate under the temporary promotion.

The permanent promotion also reduced adoption rates for consumers under age 50, especially if they were close to the age of 50. Rather than acquire the ATM cards immediately, they preferred to wait until they were eligible for the €50 bonus.

The bottom line for companies marketing new innovations: pay attention to older consumers, give them a monetary incentive to adopt new technologies or innovations, but put a time limit on the incentive to inspire immediate action.

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Authors

Institutions

Source

Idea conceived

  • April 2014

Idea posted

  • March 2015

DOI number

10.13007/502

Subject

Real Time Analytics