The early majority is an important concept in marketing and business. I’ll provide you the definition, an example and how to recognize it, and what comes after it. I’ll also share a cautionary tale of why not recognizing an early majority can be a costly mistake.
Phases in marketing
Emerging markets follow a predictable curve, with five phases in them: Innovators, Early Adopters, the Early Majority, the Late Majority, and Laggards. Whatever product we’re talking about, if it catches on, its sales figures will follow this curve.
The early majority is the third phase in this curve. It’s the time when sales figures take off. When the early majority phase is complete, the product has 50 percent market penetration.
Early majority definition
The early majority is the first phase when a product goes mainstream. It’s the 34 percent of a potential market that comes after the innovators and early adopters buy in. They are more deliberate and cautious than the first two phases. They don’t have to be the first to have something. Instead, they seek the balance between being early and being certain they’re making the right decision.
The early majority phase starts when a product reaches 16 percent market penetration and ends at 50 percent. The end of the early majority phase is the tipping point.
This is the make or break time for a product. If it reaches 50 percent and its competition doesn’t, it’s over. VHS reached this point and Betamax didn’t. That’s why VHS was the consumer standard for VCRs in the 1980s. Blu-Ray reached this point and HD-DVD didn’t.
This group is mainstream consumers. This type of consumer isn’t the first on the block to buy anything. They get in fairly early, before the point where it seems like everyone has one, but they’re a bit cautious. This is the type who says they’re waiting until they work the bugs out, or they’re waiting for the price to come down just a bit. They aren’t the type who can say “I had x before x was cool.” Nope, they bought it right about the time it got cool.
Another way to look at it, as someone who’s been in both camps: An early adopter buys the best one thinking that one is going to win. The early majority waits to make sure they buy the one that’s going to win. See the difference?
An early majority example
Consider the HD-DVD vs Blu-Ray format war. The war lasted a shade under two years. In 2006, the pioneers and the early adopters made their play. These were the people who had big, high-definition TVs and wanted something that looked better than DVDs. And they were fine with paying $600 for a player and paying a premium to re-buy their favorite movies yet again so they could have an immersive home theater experience.
The discs and players came out in the summer. Waiting until Christmas to buy would have been an early majority move. Waiting until sometime in 2007 is even more on-brand for the early majority though. They’d have any number of reasons to wait until after Christmas. Maybe there’ll be a sale. Maybe one of the major players will make an announcement that makes the decision easier. And maybe there’ll be an article in Consumer Reports. But if nothing else, they can wait a couple of months and see what’s selling and what’s not. Maybe not all their favorite movies are available in either format and they want to see if that changes. Especially in a case where there can be only one winner, an early majority type is going to wait to see who’s ahead, then buy.
That’s why HD-DVD disappeared suddenly. To observers at the time, it may have seemed like Toshiba gave up on the format very quickly. It didn’t last on the market two years. That’s because Blu-Ray discs outsold HD-DVD for the first six months on the market, and then, for three quarters in a row in 2007, outsold it 2:1.The difference in player sales was even more stark. Blu-Ray players outsold HD-DVD players almost 10 to 1, partly because the Playstation 3 console included a Blu-Ray player.
The movie studios gave up on HD-DVD after the 2007 Christmas season didn’t reverse fortunes. Since consumers were going to buy one or the other, there was no feasible way for HD-DVD to catch up at that point. Had sales been roughly equal, Toshiba wouldn’t have given up after 23 months.
A slower example of the early majority
Let’s take the example of the Blu Ray’s predecessor, the DVD player. It had a slower uptake, which makes it easier to study. I couldn’t find US sales figures for some reason, but I was able to find them for Australia. That will work. Australia has about 5.5 million households.
Between 1999 and 2001, Australians bought 664,132 DVD players, reaching a market penetration of 12 percent. In 1999, a DVD player cost $1,000 Australian dollars, which is about $750 US dollars. The early majority phase hit sometime in 2002. That year, 900,000 Australian households bought DVD players. The price had fallen to $343 Australian. Then, in 2003, 1.9 million Australian households bought DVD players. At that point, one could argue the early majority was about over. It’s hard to know exactly when it ended because some households would buy more than one. Sales stayed above 2 million units until 2008 before starting to tail off in 2009.
If you were alive in 2002 and 2003, it seemed like almost everyone bought a DVD player at Christmas that year. That’s the early majority at work.
Sales tail off after the early majority is over. DVD player sales got a boost at mid-decade from recorders coming onto the market, but they peaked in 2006.
The danger of not recognizing the early majority phase
In 2000, I think investors’ failure to apply the theory of the diffusion of innovations, and its concept of the early majority, contributed to the dotcom bust.
In the late 1990s, analysts were calling AOL the only blue chip tech stock. Meanwhile, I was running around saying AOL wasn’t going to last forever, and people were telling me I didn’t know what I was talking about. I couldn’t explain why, because I didn’t know the theory of diffusion of innovation. But I knew AOL’s growth couldn’t last. I at least had some idea we would run out of new people to sell computers and Internet access to. I also knew people were going to want something faster than dialup. More crazy talk.
Meanwhile, Ebay was an investor’s darling too, fueled by people who had no interest in computers suddenly discovering they can buy anything they ever wanted on this new digital flea market. But they also ran out of new people to sell to, so their growth flattened, and investors punished them.
I let someone talk me into investing in AOL, figuring he knew something I didn’t. Nope. AOL ran out of new people to sell to, started losing market share to DSL and cable modems, and the stock price tanked. I was writing off those losses for years.
Once a product hits the early majority, the best you can hope for in the future is for sales to level off. Late majority sales may approach early majority sales or be a bit less. Once you top about 80% market penetration, replacement and additional-unit-for-the-home sales are all you have left. The growth period is over at that point.
And this is generally where investors start pummeling the stocks of companies in that market. In the case of AOL, it was time to get off the train. But in the case of Ebay, which proved it could stick around a while, they were punishing success.