Competing in
High-Velocity Markets
Stanley F. Slater
The rate of market change has accelerated dramatically over
the past decade. Products that we once only dreamed of have
become commonplace. Other products that recently seemed to
be state-of-the-art are now obsolete. As rapid change has be-
come the rule, the requirementsfor competitive advantage have
shifted. This article describes and analyzes the key character-
istics of high-velocity markets and offers some suggestions for
how a business might effectively position itseIf in this
environment.
INTRODUCTION
New markets are constantly born and transformed as
the result of deregulation, the fall of international eco-
nomic boundaries, the advent of new technologies, and
changes in buyer needs. Product life cycles grow shorter
and shorter. Where life cycles were once measured in
years, today they more often are measured in months.
For example, the average effective life span for com-
mercial electronics products is only 2 years. However,
it is certain that a new generation of product will emerge
to replace the earlier technology.
For many firms, high-velocity markets and the new
product opportunities they represent are becoming the
Address correspondence to Stanley F. Slater, Dept. of Strategic Management
and Marketing, University of Colorado-Colorado Springs, Colorado Springs,
CO 80933-7150.
Industrial Marketing Management 22, 255-263 (1993)
0 Elsevier Science Publishing Co., Inc., 1993
655 Avenue of the Americas, New York, NY 10010
most important part of their business. At 3M, products
less than 5 years old account for 25% of sales. During
the 197Os, new products accounted for one-fifth of cor-
porate profits; in the 1980s they accounted for one-third
of profits [ 11. In the 1990s this figure could increase to
one-half.
The importance of high-velocity markets and the new
product opportunities they represent are unquestionable.
However, the market characteristics that affect both op-
portunities and threats for companies competing in these
markets have not been well described. Furthermore, the
pros and cons of different routes to developing and sus-
taining competitive advantage in these markets are not
clearly understood.
This article will (1) provide a framework for the anal-
ysis of opportunities and threats in high-velocity markets,
(2) describe two generic strategies that offer the promise
for superior performance in these markets, and (3) sug-
gest some organizational characteristics that will be re-
quired of all businesses. In describing the strategic
options, we will also consider conditions that influence
the likelihood of success for each.
CHARACTERISTICS OF HIGH-VELOCITY
MARKETS
In terms of product life cycle, high-velocity markets
encompass the embryonic and early growth stages of the
new product. As such, they typically are characterized
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 High uncertainty and high risk

by both high-growth and high-investment requirements.
Furthermore, product technology is unstable, and the
competitive map is constantly changing [2-41. The bot-
tom line in high-velocity markets is that uncertainty and
high risk are a way of life for all market participants,
from competitors and customers to suppliers. Figure 1
summarizes the influences on uncertainty from the per-
spective of each of the primary market participants.
Customers
Estimating market demand and growth is one of the
most difficult tasks of planning in high-velocity markets
[5]. However, it is one of the most important tasks, as
anticipated demand drives all types of resource require-
ments, from building manufacturing facilities to devel-
oping distribution channels to hiring key personnel. A
major reason why demand is so difficult to forecast at
the emergent stage is that buyers are usually satisfying
their generic need with some alternative product or tech-
nology [6]. For example, before the transistor there were
vacuum tubes. Currently, manufacturers of optical disk
drives are trying to induce users of magnetic disk drives
to switch. Thus, the uncertainty for the seller concerns
the rate at which buyers can be induced to substitute the
new technology for the old technology [2,4,6,7].
Many factors influence the rate at which buyers are
willing to substitute. Predominant among these are per-
ception of value advantage, presence of switching costs
and magnitude of the cost of product failure, and fear of
obsolescence [2,4,5]. The primary marketing task in
emerging markets is to persuade buyers that a new so-
lution offers sufficient benefits to offset its higher costs.

Customer Influences
Adoption Rate
Perception of Advantage
Fear of Obsolescence
Cost of Failure

Competitor Influences Supplier Influences

Market Risk Technology Commitment
Threatened Industries
Number of Competitors Technological Risk MaterialsAvailability
Technology Commitment Financial Risk Materials Cost
Information Diffusion Product Standardization

Company Influences
Market Knowledge
Technical Knowledge
Low Volumes
High Costs
Erratic Product Quality

FIGURE 1. Structural influences on risk in high-velocity markets

256
 Despite the unquestioned superiority of compact disc
players, it took several years for this technology to ef-
fectively replace the traditional turntable. Furthermore,
there was a substantial switching cost to substitute the
CD player for the turntable as collections of records be-
came obsolete. Also, it was not very long after the in-
troduction of the CD player that manufacturers of stereo
equipment began to discuss the next generation of tech-
nology, digital audio tape (DAT), which suggested the
possibility of rapid obsolescence of CD players as it of-
fered comparable, if not superior, sound quality plus the
opportunity for home recording. The question for many
buyers became: “Do I purchase a CD player today or
wait a couple of years for the next generation?” This
question has often been asked in technology-driven in-
dustries from personal computers to solar energy.
The results of these buyer concerns include lower brand
or manufacturer loyalty and changing key success factors.
To encourage substitution, sellers must be able to un-
derstand and anticipate the key success factors that will
lead to the creation of superior value for buyers and must
be able to inform and educate buyers about why their
offering provides superior value relative to the traditional
technology and to competitors in the new technology as
well.
Competitors
There are two categories of competitors that a seller
must be concerned with. There are the traditional firms
from the threatened industries, and there are the com-
petitors in the new technology. Each has its own effect
on how the industry and technology will develop and
must be considered when setting objectives and devel-
oping strategy.
While the task of the innovative firm is to induce rapid
substitution, the objective of firms in the threatened in-
dustry is to slow the substitution rate as much as possible.
Firms in threatened industries often become very ag-
gressive in defending their markets as they have much
to lose [2,4]. A study of 22 firms in seven threatened
industries found in all cases that the old technology con-
tinued to be improved and reached its highest state of
technical development after the new technology was in-
troduced. In four of the seven industries, sales continued
to expand after introduction of the new technology, and
it took from 5 to 14 years for sales of the new technology
to exceed those of the old technology [6].
Aside from continuing to improve the old process,
threatened firms are also in a strong position to reduce
prices, thus making it difficult for the new technology to
offer superior price performance. Finally, a substantial
proportion of threatened firms also participate in the new
technology, creating a name-recognition barrier that the
new-technology firms must overcome.
Competitors in the new technology are usually the pri-
mary drivers of technology change [8-91. As the tech-
nology standard has often not been clearly defined, this
is a period of high uncertainty and risk for developing
firms. Perhaps the clearest example of this tension was
between Sony’s Betamax and Matsushita’s VHS video
cassette recording technology. Although Sony’s Betamax
was the first to market and offered what was generally
perceived to be superior picture quality, the VHS tech-
nology offered other features that were of greater value
to consumers. Betamax is now an interesting footnote in
the history of the video cassette industry.
Competitive intensity in the high-velocity market also
affects the rate at which substitution takes place [37]. Un-
der intense competition, technology is likely to advance
more rapidly, and price competition becomes more prob-
able. Both conditions serve to increase value for buyers
by increasing benefits and reducing costs, respectively.
The perception of increased value encourages substitution
but also reduces average industry profitability.
Finally, it is very difficult to maintain either a prod-
uct or process technology lead over the competition.
Consultants estimate that competitors secure detailed in-
formation on 70% of new products within 1 year of in-
troduction and that 60% to 90% of all “process learning”
is eventually acquired by competitors [lo, p.531. Thus,
competitive advantage is very difficult to sustain, and the
determinants of performance are constantly changing.
Suppliers
Suppliers can also have a substantial impact on tech-
nology development in the emerging market [6,8]. For
example, chip manufacturers such as Intel have as great
an impact on technology advancement in the personal
computer industry as do the personal computer manu-
facturers. Consequently, manufacturers must develop
close relationships with these key suppliers, so that they
can take advantage of the new technology as rapidly as
possible.
On the other hand, suppliers can retard both techno-
logical development and product delivery if critical raw
materials are not available in adequate quantities [2]. This
problem is exacerbated in cases where industry standards
have not developed and suppliers are reluctant to commit
257
 Three strategic
to a specific technology by making substantial invest-
ments in manufacturing capability. Involving key sup-
pliers early in the product-development process and
developing a long-term partnership may reduce the pos-
sibility of shortages and erect a temporary entry barrier
to competing firms.
Company
From the company’s standpoint, the greatest influence
on uncertainty is their lack of experience with the market
and with the technology. Hollister Sykes [ 1 I], the former
senior vice president of Exxon Enterprises and head of
the new ventures program, noted that venture success is
directly related to the venture’s market and technical
knowledge. Numerous studies have shown that a com-
pany’s risk of failure is greatly reduced when it sticks to
familiar technologies and products [ 12- 131. Drifting too
far from the business’s core competence often results in
high development costs and erratic product quality [2].
Furthermore, the small volumes sold during the devel-
opmental stage of the market increase the financial risk
for the company.
STRATEGY ALTERNATIVES IN
HIGH-VELOCITY MARKETS
There are three generic strategy alternatives, each with
many variations depending on the market characteristics
and the company’s resources for entering a market. These
are the pioneer, the early follower, and the late follower.
Figure 2 depicts the average expected long-term perfor-
mance of each of the three types.
Aside from having the lowest performance of the three
types, the late follower is not an option during the emer-
gent stage of high-velocity markets since the market has
Stanley F. Slater is Associate Professor of Strategic
Management and Marketing at the University of Colorado,
Colorado Springs, Colorado.
258
alternatives
developed past this point before the late follower is ready
to enter. Consequently, the late follower will not be con-
sidered further.
There are advantages and disadvantages to both the
pioneer and early follower strategies. Pioneering is a
high-risk strategy, but, for survivors, pioneering results
in higher market share and greater profitability
[2,5,14,15] On average, though, being an early follower
through imitation costs about one-third less and takes
about one-third less time to get to market than innovation
[10,16] which greatly reduces financial risk. Further-
more, “an early commitment to a technology may later
turn out to be a disadvantage or even a liability as alter-
native technologies emerge” [5].
As usual, the opportunity for high rewards entails high
risks. The question that the manager must answer is: “Do
the potential rewards of being a market leader outweigh
the substantial financial, technological, and market risks
associated with being an innovator?” In the following
sections we will offer some thoughts for how both the
pioneer and early follower strategies can be effectively
positioned within the structure of high-velocity markets.
The Pioneer Strategy
Pioneers are innovators. They are the first to identify
new market opportunities, they have the technological
capability to develop products that address those oppor-
tunities, and they are willing to invest the substantial
resources in R&D, manufacturing capacity, distribution,
and promotion that are necessary to bring the product to
market before the competition. Competitive advantage
for pioneers primarily arises from either technological
leadership, preemption of assets, or creating buyer
switching costs [ 171.
Toshiba’s line of laptop computers [ 181 and Genen-
tech’s development of the biotechnology drug market [ 191
are excellent examples of successful products from the
pioneer strategy. However, the experiences of defunct
microcomputer pioneers such as Osborne, Computer De-
vices, and Vector Technologies provide a sober reminder
of the downside to this strategy. Besides willingness to
take extraordinary risks and invest very substantial sums
 Return on
Investment
0%
Pioneer
FIGURE 2. Illustrative market performance by strategy type
of money, what are the support strategies that contribute
to the pioneer’s success?
CUSTOMERSTRATEGIES. One of the most difficult tasks
for the pioneer firm is to correctly identify new market
opportunities. This task is especially difficult because
potential buyers often have no frame of reference for
understanding the new product concept. After performing
the traditional market research on the Sony Walkman,
the results indicated little demand for the product. Akio
Morita, the president of Sony, did not believe those re-
sults and introduced the Walkman based on his own in-
stincts. The Walkman went on to become one of the great
new product success stories of the 1980s and laid the
foundation for numerous follow-on products from Sony
and from their competitors.
This example and numerous others demonstrate the
shortcomings of traditional market research techniques in
new and emerging markets [13,20]. However, putting
customers first was found to be the most important man-
agerial practice in a Fortune study of high growth busi-
nesses, many of whom are operating at the leading edge
of market development [21]. Other studies have found
that working closely with lead users whose current needs
anticipate those of the general market and who are in a
position to benefit significantly from an early solution to
those needs is effective in these emerging markets
[2,20,22-241.
Pioneers also have the opportunity to develop and po-
sition products for the largest and most lucrative market
- Average ROI
Early Late
Follower Follower
segments [ 151. Successful pioneers start out with a sig-
nificant product advantage over earlier technologies
which stimulates substantial substitution prior to the entry
of early followers. To the extent that the pioneer can
build in switching costs for the buyers to move to a
competitor’s product, a sustainable competitive advan-
tage is created. In the absence of a defensible position
such as high switching costs, early followers are often
able to improve on the original product. To maintain their
advantage, pioneers must place greater emphasis on non-
product sources of competitive advantage such as service,
delivery time, and payment schedules [ 121.
After the concept has been developed and the target
market identified, a substantial effort to inform and per-
suade potential buyers of the value of the new product
remains. Practitioners of consultative selling [25] make
a commitment to understanding their customers’ busi-
nesses so well that they can quantify the economic value
of their offering to their customers. Rather than pushing
the product, they demonstrate to their customers that use
of the new product will have a positive impact on the
customer’s organization’s bottom line by increasing sales
volume, improving price realization, or reducing costs.
To accomplish this, Digital Equipment Corporation
sometimes places consultants directly in key customers’
facilities.
COMPETITOR STRATEGIES. A potentially important
competitor-oriented strategy for pioneers is to enter into
an alliance with current or prospective competitors. In
259
 Closer supplier
1988 Texas Instruments announced a cooperative ar-
rangement with Hitachi to develop a 16-megabit dynamic
random access memory (RAM) chip. Wally Rhines, ex-
ecutive vice president of TI’s semiconductor group ex-
plained: “We both needed a business partner to minimize
our risks” [26, p. 681. In one move, TI reduced both the
number of competitors it faced in that market and its
financial and technological risk.
SUPPLIER STRATEGIES. The relationship between man-
ufacturers and their suppliers has changed dramatically
in the past 5 years. To improve quality control, buyers
have reduced both the number of components in their
products and the number of their suppliers; they expect
to see just-in-time manufacturing and delivery techniques
and statistical process quality controls that quickly iden-
tify the causes of defects; and they require that vendors
be able to communicate and handle data electronically.
This has major implications for pioneer firms, as many
vendors have been able to reduce from weeks to days the
time it takes for custom designs to be turned into finished
products. For example, computer-aided design and com-
puter-aided manufacturing in vendors’ shops enables the
buyer’s engineers to directly transmit their concepts and
drawings without the time-consuming preparation of
blueprints [27].
An additional benefit for pioneers is that early entrants
with a viable product typically have their choice of the
best “suppliers” of distribution services (e.g., brokers,
distributors, and retailers) in the industry. This can also
serve as a significant barrier to followers [ 15, p.2 111.
COMPANY STRATEGIES. Successful pioneers develop
meaningful innovations by effectively integrating their
research, engineering, production, marketing, and man-
agement practices with a view to the long term and a
strong market orientation at all levels of the organization
and throughout all functions [28]. Management tech-
niques that innovate companies employ include frequent
but low-risk market experiments [ 181; small, flat, auton-
omous subunits within the larger organization [28-291;
performance evaluation and reward systems that encour-
age risk-taking and innovative behavior [30]; complete
260
strategies
rejection of the not-invented-here (NIH) syndrome [3 11;
and intensive collaboration among all groups involved in
product development [24].
The Early-Follower Strategy
Where the pioneer focuses on developing innovative
new products, the early follower is a creative imitator
[32] whose objective is to make incremental improve-
ments that allow to reduce costs and exploit unattended
market opportunities. Early followers have two sources
of advantage that substantially reduce their financial and
market risk and provide an attractive opportunity for
growth and profitability: They almost always start with
lower costs than those incurred by pioneering firms [5]
and they have the opportunity to assess how effectively
the pioneer has positioned itself with respect to market
needs and can then make appropriate adjustments [ 331.
AST Research, Inc., is an excellent example of the early-
follower strategy. Between February 1990 and May 199 1
the company’s market value quadrupled as a result of
offering a lower cost, higher performing family of per-
sonal computers than leaders IBM and Compaq [34].
CUSTOMER STRATEGIES. A strong customer orientation
is just as important to early followers as it is to pioneers.
However, where pioneers primarily focus on lead users,
early followers take a broader view of the market. Their
goal is to determine how effectively the pioneer’s offering
addresses the buyers’ needs. Traditional marketing re-
search techniques are much more appropriate for the early
follower. The early follower should also be interested in
identifying market segments that do not realize adequate
value from the pioneer’s offering.
COMPETITOR AND SUPPLIER STRATEGIES. The greatest
opportunity to create competitive advantage for early fol-
lowers is to learn from the experiences of the pioneers
and to create additional value for buyers. This can come
from cost or benefit improvements. On the cost side, the
early follower typically enters the learning curve below
where the pioneer entered. This is because the majority
of all learning effects ultimately diffuse to competitors
as they learn about technologies in use or purchase sec-
ond-generation production equipment from suppliers
[181.
Early followers have the opportunity to learn from
pioneers’ market mistakes as well [ 181. For example,
when buyers have quality or performance concerns due
to lack of familiarity with the pioneer, well-known early
followers can be very successful with me-too products
[33]. Furthermore, pioneers can entirely miss the mark
with their initial products but provide key market intel-
ligence to astute followers as was the case when Miller
Brewing introduced its very successful “Lite Beer” on
the heels of unsuccessful diet beers. However, followers
must be very careful to avoid positioning their products
too near the pioneer’s product, as this often invites ruin-
ous price competition [33].
COMPANYSTRATEGIES. Early followers differ from pi-
oneers in a few key areas. First, early followers have
broader market surveillance efforts than do pioneers [35] _
While the pioneer’s primary emphasis is on the lead cus-
tomer, early followers must maintain an intensive dual
focus on both customers and competitors. To develop
this information, early followers use market research
techniques such as “conditional forecasting,” “fatal
flaws analysis,” and trend evaluation 1361. These tech-
niques help assess market potential and competitor
strength so that poor opportunities may be avoided and
attractive opportunities effectively exploited.
Not only are early followers adept at developing key
market information, they also must be able to quickly
produce and assess information about competitors’ tech-
nologies and products. This enables them to take advan-
tage of the pioneer’s learning, which results in a lower
production cost. To accomplish this, successful early fol-
lowers are expert at “reverse engineering.” For example,
most Japanese auto makers establish target costs based
on exhaustive comparative studies of competitors’ prod-
ucts. Target costs at Isuzu might be derived from the
analysis of a steering mechanism from a Toyota and a
brake pedal from a Nissan [37].
The “reverse engineering” concept can be applied to
nonmanufacturing areas through competitive benchmark-
ing. The objective of benchmarking is to compare the
business’s operations with those of industry leaders.
These comparisons may be against competitors or against
noncompetitors. A noncompetitor comparison can pro-
vide information about the best functional practices in
any industry, which may include technological advances
that are unrecognized in the business’s own industry [38].
A major difference between the successful pioneer and
the successful early follower is the fact that the early
follower makes a commitment to stability in product de-
sign and production process [35,39]. This enhances its
ability to reap economies of scale in manufacturing, se-
cure lower cost raw materials, and rapidly increase the
learning benefit. All of these are important contributors
to the early-follower’s development of a cost advantage.
STRATEGIC NECESSITIES IN
HIGH-VELOCITY MARKETS
High Quality
The conventional wisdom has been that competitive
advantage can be achieved either through attainment of
a low-cost position relative to competitors or through the
achievement of meaningful product or service differen-
tiation, the two routes being basically incompatible as
they require different resources and skills [2]. However,
this is not the case when it comes to quality-based dif-
ferentiation and low cost. In fact, the management pol-
icies that breed high quality reduce costs through
intensive emphasis on learning, lower scrap and rework
rates, and fewer returns from the field. In a comprehen-
sive study across six industries, product quality had a
beneficial effect on direct cost as higher quality lead to
higher market share with its attendant scale and learning
benefits [40]. Additional studies show that high quality
allows premium pricing, which further enhances returns
on investment [4 l-421
Consequently, low quality can no longer be justified
based on a lower cost to the buyer. Buyers no longer
merely want high quality, they demand it. Poor product
quality will result inevitably in high costs and low sales.
Unfortunately for sellers, though, high quality may cease
to be a source of competitive advantage as all survivors
achieve parity. It has or will become a minimum require-
ment to be competitive as has become the case in the
automobile industry.
Speed to Market
It should go without saying that success for both pi-
oneers and early followers requires rapid new product
development and introduction [43 1. Successful compa-
nies today make decisions faster, develop new products
more rapidly, and deliver them more quickly than their
261
competitors [21,44-451. However, in too many U.S.
businesses, this cycle takes from 36 to 48 months com-
pared to 12 to I8 months for the market leaders [46].
This is a very real case of “time is money.” Studies
by Arthur D. Little [47] and McKinsey and Company
[45] show that reducing time to market has a greater
impact on product profitability than making similar re-
ductions in either investment cost or R&D expenses.
However, pioneers are cautioned to spend the necessary
time to develop a meaningful advantage over competitors’
anticipated offerings, as the marginal returns of those
R&D and marketing efforts seem to be high enough to
offset the risk of being overtaken by rival innovators [43].
Speed is not achieved by making everyone work faster,
though. Speed is achieved by eliminating wasteful steps
and procedures in both the development and production
processes, by organizing more efficiently, and by catch-
ing mistakes earlier [48]. The good news is that the same
management techniques that foster innovation and high
quality also improve the efficiency and timeliness of the
development process. This common base of management
techniques includes the use of multifunctional teams at
every stage of development to avoid mistakes and dead
ends, minimization of bureaucratic delays by cutting re-
quired approvals and reducing layers of management,
early involvement of suppliers and distributors so that
bottlenecks don’t appear, and the creation and sustenance
of a corporate culture that motivates all employees to
produce and deliver the highest value product to the cus-
tomer in the shortest period of time.
FINAL REMARKS FOR MANAGERS
In Chinese, the concept of “critical turning point” is
represented by two characters. One character means
“danger,” while the other character means “hidden op-
portunity. ” Entering an emerging market or one that is
experiencing transformation represents a critical turning
point for most businesses. Long-held beliefs about cus-
tomers, competitors, employees, and technology must be
reexamined. To find the “hidden opportunity” in this
dynamic period, managers must develop a culture that
places the top priority on customer-driven value as de-
fined by quality and timely product offerings. Their busi-
nesses will have a core set of skills that enable them to
be continuously innovative. Finally, their management
policies will all be integrated with the objective of pro-
viding the most productive environment for the company
and its network of suppliers and distributors to accom-
262
plish their objectives. The “danger” in this world of
high-velocity markets is real and imminent. Anything less
than total commitment to customer-driven innovation will
result in failure.
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