7. First Mover

8/3/2019 7. First Mover

1/14

1

WHAT IS A FIRST MOVER?

MAKE A DISTINCTION BETWEEN:

Being the first to PRODUCE a new PRODUCT

Being the first to USE a new PROCESS

Being the first to ENTER a new market

A given firm may be first in one or more of these, anda follower in others.


2/14

2

FIRST MOVER ADVANTAGES (FMA)

Definition:Following entry, FMA arise during the period of limited competition

and enhanced profitability enjoyed by the pioneering firm OR theyare due to the adverse affect on follower profitability caused by thestrategic positioning of a pioneering firm.

When imitation is costly or occurs with long lags, early entrycan be leveraged into significant long run benefits for thepioneering firm. The duration of FMA depends on the pace of

imitative competition.

Lack of competition for resources following entry may reducethe cost of assembling/acquiring critical resources and thereby

further enhance profits.


3/14

3

FIRST MOVER

OPPORTUNITIES

Potential for First Mover Advantagesmay be found in:

New products

New processes

New markets


4/14

4

EXAMPLES

First movers who succeeded:

Xerox in photocopiers General Electric in light bulbs

Polaroid in instant photography

Coca Cola in soft drinks

Federal Express in overnightdelivery

First Movers who failed:

Bomar in calculators

Sony in VCR

Osborne in portable PC

Docutel in automated tellermachines


5/14

5

SOURCES OF FIRST MOVER

ADVANTAGESPROPRIETARY TECHNOLOGY

R&D and Innovation. Product or process technology can bekept proprietary through:

Patents

Copyrights

Trade secrets

Managerial and organizational innovation

Learning curve


6/14

6

PREEMPTION OF SCARCE RESOURCES

Input factors( e.g., skilled human capital, natural resources)

Preemption of market positions(e.g., small markets with room for a limited number of players)

Locations(e.g., prime retail locations)

Marketing and distribution channels

(e.g., retail shelf space) Preemption of consumers perceptual space

(e.g., Kleenex, Xerox, Coca-Cola)

Preemptive capacity investments


7/14

7

Switching costs develop, among other things, when thebuyer has to invest time and money in adapting to thesupplier's product. These investments are lost when the

switch is made. When benefits from switching to a newsupplier are uncertain, risk averse buyers may face stronglock-in.

Initial transaction costs

Supplier specific learning over time

Contractual switching costs

Uncertainty about quality

Compatibility

BUYER SWITCHING COSTS


8/14

8

FOLLOWER ADVANTAGES

Late-movers can free-ride on the pioneering firm'sinvestment in technology (product and process R&D)and market development (e.g., buyer education), andthereby avoid some of the costs and uncertaintiesassociated with early entry (e.g., resolution of marketuncertainty)

Technological discontinuities and inability of incumbentsto adapt to a changing environment can provide"gateways" for followers


9/14

9

FOLLOWER ADVANTAGES

(CONTINUED)Free riding by late entrants

TechnologyDiffusion of technology may make imitation cheaper than innovation

Buyer educationEnhanced consumers' awareness through pioneer's advertisingbenefits followers

Employee trainingFollowers may hire pioneer's trained employees; followers may

emerge from pioneer's employment ranks. Knowledge spillovers.

Infrastructure developmentPioneer's investment in developing a support industry and in obtaining

regulatory approval benefits others


10/14

10

FOLLOWER ADVANTAGES

First-mover technology and marketing strategy lock-in

Commitment to technology

When technology uncertainty is high-- i.e., the 'industry standard' orthe 'dominant design' are unsettled--first movers may be committedto the wrong technology

Discontinuities in technology and in customers' needs

Late entrants may be able to leapfrog the technology of the firstmovers, and/or use more effective marketing channels to appealto consumers, thereby causing the market to shift away from the firstmovers


11/14

11

FOLLOWER ADVANTAGES

(CONTINUED)Incumbent inertiaThe successful first mover may be locked into its initial technological and marketapproach, and fail to adapt to the changing competitive environment because of:

Organizational routines

The firm's established view of technology or customer needs or stableexchange relations with other organizations may restrict its ability to anticipate

or respond to change. Sunk costs

A substantial capital investment by a first mover may delay a decision toadapt to an emerging technology or marketing channel.

Reluctance to cannibalize existing linesAs compared to a follower, a first mover has less incentive to introduce newproducts.


12/14

12

TO PIONEER OR FOLLOW?

SUSTAINABILITY OF THE LEAD Source of the technology change

Advantage in technological development activity Advantage in skills The diffusion rate of technological informationFIRST MOVER ADVANTAGES

Ability to define competitive rules Reputation advantage Ability to preempt and make it stick Switching costs

Position on the learning curve Superior access to channels and to inputs Ability to define industry standard


13/14

13

TO PIONEER OR FOLLOW?(CONTINUED)

FIRST MOVER DISADVANTAGES

Non-proprietary pioneering costs

Demand & technology uncertainty Threat of obsolescence and/or imitation

Source:Lieberman & Montgomery To Pioneer or

Follow?: Strategy of Entry Order


14/14

14

LESSONS FROM SUCCESSFUL

PIONEERSExploit the sources of first moveradvantages while avoiding the traps:

Preempt opportunity for entry

Obtain patents or copyrights

Fill positioning gapMinimize technological leakage

Retain employees

Develop organizational capabilitiesTrack the evolution of customer needs

Be prepared to cannibalize

Maintain flexibilityStudy competitors

Documents

7. First Mover