First Mover Benefits and Drawbacks in Business

First Mover Benefits and Drawbacks in Business

How does being the first product introducer in the market benefit you?

Companies gain a competitive advantage when they introduce a new product or service to the market first. Before their competitors can achieve market recognition, first-movers gain loyalty from their customers.

Whenever large companies enter a market first, they have an advantage. Amazon did not invent online book sales. Due to its success in scaling up, the company was the first of its kind.

The benefits of being a first mover

A business that executes a strategy first has several advantages.

First-movers often have the following advantages:

  • Become the industry standard for their product
  • Create strong brand recognition and loyalty by catching the attention of consumers first
  • By establishing a contract with key suppliers, based in a strategic location, or hiring talented employees, they may be able to control resources.
  • Consumers may switch to later entrants at a high cost if there is a high switching cost

First-mover benefits

Professors Marvin Lieberman and David Montgomery, in their 1988 award-winning paper, First-Mover (Dis)Advantages: Retrospective and Link with Resource-Based View, list three main benefits of being a first mover:

1. Taking the lead in technology

Technology/products/services created by the first movers are harder to replicate by later entrants. An absolute cost advantage can be achieved by the first mover if he/she is able to reduce the production costs of a product. Furthermore, obtaining a patent can protect your invention and give you a competitive edge.

2. Resource control

Secondly, management of scarce or strategic resources is a benefit. Wal-Mart, for instance, could locate in small towns, deterring others from competing.

3. Switching costs for buyers

Buyer switching costs may also be a benefit to first movers. Consumers may find it difficult to switch brands if the first business is successful in establishing itself.

First-mover disadvantages

It may not always be advantageous for a business to be the first in a field.

  • Consumers may be persuaded to try a new product by the first mover. It would be easier for later entrants to educate consumers if these buyers were informed.
  • By avoiding the mistakes made by the first mover, later entrants can avoid making the same mistakes.
  • It is possible for later entrants to capitalize upon the failure of the first mover to capture consumers with their products.
  • Reverse-engineering gives competitors the opportunity to improve or reduce the cost of new products.
  • By identifying and exploiting areas of improvement left by the first mover, later entrants can gain an advantage.

Examples of Successful Companies That Were Not First Movers

Listed below are three companies that were not first movers in their respective markets, but have now grown to become some of the biggest companies in the world:

1. Google

Google was preceded by Yahoo and Infoseek, two other search engines. However, Google customized its search engine to make it more efficient and effective. Search activity is now controlled by them to the tune of over 65%.

2. Southwest Airlines

As the world’s second-largest airline by passenger numbers after entering the airline industry late, Southwest Airlines expanded rapidly throughout the 1990s. Short-haul flights were something that other airlines did not focus on.

3. Starbucks

Before Starbucks, there were many coffee shops. As a result, Starbucks has established a strong brand equity by positioning itself as a go-to place both at home and at work.

Leave a Reply