In a market characterized by high barriers to entry or increasing returns to scale, the first company to introduce a new product or innovation can gain a substantial competitive advantage which is difficult for competitors to overcome. This is referred to as first mover advantage. Some of the largest advantages of being first comes from creating the standards and rules for that innovation. Additionally, consumers will often remember the first brand to enter into a new market category which is priceless in the marketing world. So long as the first movers have the right set of competencies and organizational practice, the first mover can reap the returns from being in the right place at the right time.
Comparatively, A 1993 paper by Peter N. Golder and Gerard J. Tellis suggested that the progression of an idea and new product follows this progression: Innovation > Product Pioneer > First Mover > Fast Follower. The results of a study conducted by the group, found that forty seven percent of all market pioneers ended up failing and the majority of the remaining, had a small market share. Instead, the authors suggest that it is more beneficial to be in the "Fast Follower" category in order to capitalize on others mistakes. Take Amazon.com for example, they were a follower in the market behind books.com but was able to take the market by storm based on their competencies and innovation.
I believe that there is a distinct first mover advantage, however, it is largely dependent on the market need and how quickly the idea is adopted. In order to be a successful first mover, you must have a well thought out business plan that has strategies developed for any issues that may arise. Additionally, the company must be able to adapt quickly to the markets needs in order to properly capture all potential profits.
I agree. Unless the first-mover is able to deliver a product the meets all of the customers' needs right out of the gate then they have left the door open for the fast-follower to move in. The fast-follower has the ability to learn from the first-mover's mistakes and correct them to better suit the customers' needs.
ReplyDeleteNot to sound like a huge Apple fan or anything, but Apple was a fast-follower in the MP3 market and now the common name for a MP3 player is an iPod.
I completely agree with everything you have stated, however, I'm becoming a firm believer that the advantages the first mover has is only as good as the business case, and the overall strategy of the company. There are many companies first on the scene, and many quickly falter because of a poor overall strategy. The first mover must understand its Buyers, and their changing needs, create a robust supply chain to meet the ever changing demands, challenge potential substitutes, and create barriers to entry for its direct and indirect competitors.
ReplyDeleteIs often easy to say that a successful business is based on a well thought out business plan. Every business plan that ends up up venture capital is fundamentally sound, otherwise, they would not have convinced the investors. The actual differentiation is probably the people behind these companies. The team must be able to make the small adjustment according from customer feedback. In order to do this, they must be enthusiastic about the product, and be in-tune with the customer.
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