An ‘S curve’ refers to the distinctive S-shape of certain line graphs.
According to the way consultants use it, an ‘S curve’ refers to a graph that plots the number of people who have adopted an innovation. It usually refers to a new product or service for which no closely competing alternatives exist in the marketplace. At first “first-movers” adopt it; typically these are people with an existing interest or stake in technology. Then, different demographics of people might pick-up the technology for a wave of other reasons. This leads to multiple “peaks” in the graph, moving along the X-axis.
Of course, there are many other graphs that take the shape of an ‘S’. A graph with the appearance of an ‘S’ is most closely associated with innovation adoption because the S-curve is such a handy rule of thumb. In other words, the number of people adopting a new product or service almost always follows an S pattern.
This logic of adoption also relates to Simon Sinek’s reflections in his immensely successful Ted Talk.
The Bass Model
Bass first proposed the model in in 1963. Multiple studies have since validated it in various contexts. The model can forecast the long-term sales pattern of new technologies and products under two types of conditions:
- The firm has recently introduced the product or technology and has observed its sales for a few time periods; or
- The firm has not yet introduced the product or technology, but its market behaviour is likely to be similar to some existing products or technologies with a known adoption pattern.
From here, the model predicts how many customers will eventually adopt the new product and when they will adopt. In fact, the Bass Model (and S-curve) has such high external validity. It makes startlingly accurate predictions.
In addition, the reliable S-shape allows analysts to distinguish four phases in the technology life cycle: Ferment, Takeoff, Maturity, Discontinuity. Together, these features of S-curve models make it a useful heuristic in a variety of contexts.
The predictive success of the model makes it useful in at least three situations:
- Evaluating a product or industry: The rate of adoption of an innovation can place the innovation at a point on the S-curve. From here, conclusions can be drawn about the stage of growth the industry is in, as well as the possible risks that are associated with this stage of growth. This information can position a new product within an industry, determine the size of the products market and decide on an innovation strategy.
- Segmenting customers: The timing of innovation adoption by various groups is a differentiating factor, and can therefore be used to segment customers. Often, these customer groups are specified as: (1) Innovators; (2) Early Adopters; (3) Early Majority; (4) Late Majority; and (5) Laggards. These customer segments can then be used to help answer the question: How many customers will eventually adopt the new product and when?
- Sharpening your Growth Strategy: Understanding where you are on an adoption curve, what the potential cap on adoption rates are, and even how to influence the adoption curve of your products and services is the crux of growth strategy. For example, the S-curve model reveals that there is a significant tapering in growth after product maturity. To combat tapering (low growth), leadership needs to think about how to set up the next S-curve, perhaps by planning production of the next generation product.
Strong empirical evidence supports this model, but it is pretty old (1963) and there have since been many additional models that claim to predict innovation adoption with more accuracy. As a result of the models simplicity and accuracy, however, the Bass Model, with its distinctive S-curve, remains a touchstone to analysts seeking to understand the growth of industries such as the semiconductors industry, the telecommunications market and, more recently, the emerging blockchain industry. For consultants, S-curves function as a neat heuristic for approaching many common problems.
This article was written by Benjamin Glass, Graduate of University College London. Benjamin’s core focus is in education and edtech, with ambitions to engage with social impact consulting at some point in the future.