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Is the Time Ripe? How the Value of Waiting and Incentives Affect Users’ Switching Behaviors for Smart Home Devices

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Schmalenbach Business Review Aims and scope

Abstract

Product-related and market-related uncertainties often cause users to defer from switching to new IT devices. There is a value of waiting (VoW) for users because waiting allows them to collect more information. At the same time, many IT switching decisions are increasingly complex due to increased connectivity and the resulting interdependencies between jointly used devices. Therefore, switching decisions for connected devices not only need to consider the new device in isolation, but must also account for the potential benefits from internally or externally connecting the device with other devices. Although crucial for users and providers alike, existing models cannot explain whether and when users switch in such connected environments.

We focus on connected Smart Home Devices (SHDs) and simulate users’ actual switching timing based on a real options model which combines switching and deferral concepts in a context-specific setting. We examine how Smart Home Network (SHN) density influences switching and how providers can use incentives to accelerate switching to foster product diffusion. The findings show an accelerating effect of connectivity and a deferring effect of uncertainty on actual switching timing. We also learn that SHD providers should focus more on immediate than on delayed incentives to promote product diffusion, since the latter can also have undesired effects. Interestingly, external connectivity has almost no influence on decision timing in scenarios with highly dense SHNs, leading to further key implications for SHD providers.

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Notes

  1. Note that network effects usually assume a focal user’s utility to be dependent on the diffusion or usage of the same or similar technologies by others, whereas for internal connectivity it is purely the focal user’s decision whether to establish a physical connection between their devices.

  2. The necessary conditions \(H_{j}\left(ddt=0\right)>0\) and \(N_{j}\left(ddt=0\right)>0\) are not problematic in our scenario, because an internal network already exists and because independently of SHD2’s market success or failure in the long run, we can at least assume that some early adopters will use SHD2 already before it has seen strong market diffusion.

  3. We performed all analyses with MATLAB R2014. We also calculated 95% confidence intervals for \(t\)* ([86.01;93.81]) and wAM ([20.39;21.78]). The results indicated that 1000 simulation runs provide a stable basis for our analysis.

  4. This process is repeated in all later sensitivity analyses: we ensure that every simulation for every parameter variation performs \(1000\) simulation runs and that every first, second, or n‑th run uses the same number generator seeds.

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Authors and Affiliations

  1. Institute for Information Systems and New Media, Munich School of Management, LMU Munich, Ludwigstraße 28, 80539, Munich, Germany

    Matthias Berger & Thomas Hess

  2. Institute of Information Systems, University of Bern, Engehaldenstr. 8, 3012, Bern, Switzerland

    Christian Matt

  3. Chair of Service Operations, Mercator School of Management, University of Duisburg-Essen, Lotharstraße 65, 47057, Duisburg, Germany

    Jochen Gönsch

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  1. Matthias Berger
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  2. Christian Matt
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  4. Thomas Hess
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Correspondence to Matthias Berger.

Appendix

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Table 6 Values for Data Generation and the Calculation of Solutions (Base Case)
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Berger, M., Matt, C., Gönsch, J. et al. Is the Time Ripe? How the Value of Waiting and Incentives Affect Users’ Switching Behaviors for Smart Home Devices. Schmalenbach Bus Rev 71, 91–123 (2019). https://doi.org/10.1007/s41464-018-0055-1

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