First-mover Advantage

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What is a First-mover Advantage?

First-mover Advantage is the competitive edge gained by the first significant company to introduce a product or service in a market by having the shortest Time to Market.

ADVANTAGES FOR FIRST MOVERS:

The main benefits associated with being the first or at least the first significant in a market are:

• Establishing and securing a market position.
• Possibility to hinder imitation, for example by gaining supply of scarce key resources and essential distributor channels, establishing preferential shelf space and product segmentation, creating consumer awareness, switching pricing strategies, etc.

DISADVANTAGES FOR FIRST MOVERS:

The main drawbacks of trying to be the first mover are:

• High Costs (technology, R&D, distribution channels, marketing know-how).
• High Risks. Market and technological uncertainties. Will the judgment that X will be a killer product for market Y be valid?
• Free Rider Effects. Competitors can study the first mover and copy or cherry pick its strategies, processes, products, employees and/or technologies.

ADVANTAGES FOR IMITATORS (SECOND MOVERS):

The main benefits associated with being second or third in a market are:

• Reducing or avoiding development and testing costs.
• Learning from pricing mistakes of the first mover.
• Lower risk exposure.

DYNAMICS OF NEW PRODUCT INTRODUCTION STRATEGIES:

Lee, et al (2000) found that indeed moving timing and moving order are key factors in the dynamics of new product introduction:

• MOVING TIMING or the time which transpired between the date of introduction of a new product and the date of each imitation has the following implication: the faster and earlier a firm introduces a new product, the greater the shareholder wealth effect. So being a pioneer in a market brings great benefits.
• MOVE ORDER or the moving in the rank position of the new product with the introduction of every imitation hides the possibility for other firms to limit or even completely erode the benefits, which a first mover hopes to enjoy, due to the sum effect of early and late imitation.

TIPS FOR FIRST MOVERS:

It's good to separate operational speed (move quickly) (Operational Agility) from strategic speed (increase the ability to move quickly) (Strategic Agility).

Also there is a need to recognize that first-mover status is not an end in itself, but rather the beginning of a longer and much more complex strategy in which the initial advantage has to be defended against competitors and imitators.

Source: Hun Lee, Ken G. Smith, Curtis M. Grimm and August Schomburg (2000), Timing, Order and Durability of New Product Advantages with Imitation, Strategic Management Journal, Vol. 21, No. 1, pp. 23-30

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