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First-mover advantage
In marketing strategy, first-mover advantage (FMA) is the competitive advantage gained by the initial ("first-moving") significant occupant of a market segment. First-mover advantage enables a company or firm to establish strong brand recognition, customer loyalty, and early purchase of resources before other competitors enter the market segment.
First movers in a specific industry are almost always followed by competitors that attempt to capitalise on the first movers' success. These followers are also aiming to gain market share; however, most of the time the first-movers will already have an established market share, with a loyal customer base that allows them to maintain their market share.
The three primary sources of a first-mover advantage are technology leadership, control of resources, and buyer switching costs.
First movers can make their technology/product/services harder for later entrants to replicate. For example, if the first mover reduces the costs of producing a product, then they will establish an absolute cost advantage, not just a marginal cost advantage. Not only this, but the first mover will be able to apply for patents, copyrights, and any other protective advantages that will further enhance their establishment in the market.
Another way technology leadership comes into play is when a firm has had a unique breakthrough in its research and development (R&D), providing sustainable cost advantage if the innovative idea can be sustained and protected. It must be taken into consideration that technological changes are happening at an incredibly rapid pace. Therefore, patents are a weak protection as the transitory value is low. With the short lifetime of any technological advantage, patent-races can actually prove to be the downfall of a slower moving first-mover firm.
The second type of first-mover benefit is the ability to control resources necessary for the business that are of a higher quality than resources later entrants will be able to use. An example would be the advantage of being the first company to open a new type of restaurant in town and being able to obtain a prime location. This strategy was used by Walmart when they were the first to locate discount stores in small towns. The first entrant could also control the supply of raw materials needed to make a product, as well as obtaining the ideal supply chain. First-mover firms also have the opportunity to build resources that may discourage entry by other companies. An example of this is increasing production capacity to broaden product lines, therefore deterring following firms to enter and successfully make profits. This strategy is often used by Inditex with their fashion retail supply. When economies of scale are large, first-mover advantages are typically enhanced. The enlarged capacity of the incumbent serves as a commitment to maintain greater output following entry, with the threat of price cuts against late entrants.
The final type of benefit that first movers may enjoy comes from buyer-switching costs. If it is costly or inconvenient for a customer to switch to a new brand, the first company to gain the customer will have an advantage. Buyers will rationally stick with the first brand they encounter that performs the job adequately. Especially for consumer products, the first mover has the opportunity to shape consumer preferences and to earn customer loyalty. Satisfied consumers tend not to spend time seeking information about other products, and tend to avoid the risk of being dissatisfied if they switch. Some examples of pioneering brands in product categories include Coca-Cola soft drinks, Kleenex tissues, and Nestlé foods. These brands are known to often dominate their markets for a long time. These brand preferences appear to be more important for retail purchases by consumers than for products purchased by businesses, as businesses buy products in larger volume and have more incentive to search for lower-cost options that will contribute to an economy of scale.
Although being a first-mover can create an overwhelming advantage, in some cases products that are first to market do not succeed. These products are victims of first-mover disadvantages.
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First-mover advantage
In marketing strategy, first-mover advantage (FMA) is the competitive advantage gained by the initial ("first-moving") significant occupant of a market segment. First-mover advantage enables a company or firm to establish strong brand recognition, customer loyalty, and early purchase of resources before other competitors enter the market segment.
First movers in a specific industry are almost always followed by competitors that attempt to capitalise on the first movers' success. These followers are also aiming to gain market share; however, most of the time the first-movers will already have an established market share, with a loyal customer base that allows them to maintain their market share.
The three primary sources of a first-mover advantage are technology leadership, control of resources, and buyer switching costs.
First movers can make their technology/product/services harder for later entrants to replicate. For example, if the first mover reduces the costs of producing a product, then they will establish an absolute cost advantage, not just a marginal cost advantage. Not only this, but the first mover will be able to apply for patents, copyrights, and any other protective advantages that will further enhance their establishment in the market.
Another way technology leadership comes into play is when a firm has had a unique breakthrough in its research and development (R&D), providing sustainable cost advantage if the innovative idea can be sustained and protected. It must be taken into consideration that technological changes are happening at an incredibly rapid pace. Therefore, patents are a weak protection as the transitory value is low. With the short lifetime of any technological advantage, patent-races can actually prove to be the downfall of a slower moving first-mover firm.
The second type of first-mover benefit is the ability to control resources necessary for the business that are of a higher quality than resources later entrants will be able to use. An example would be the advantage of being the first company to open a new type of restaurant in town and being able to obtain a prime location. This strategy was used by Walmart when they were the first to locate discount stores in small towns. The first entrant could also control the supply of raw materials needed to make a product, as well as obtaining the ideal supply chain. First-mover firms also have the opportunity to build resources that may discourage entry by other companies. An example of this is increasing production capacity to broaden product lines, therefore deterring following firms to enter and successfully make profits. This strategy is often used by Inditex with their fashion retail supply. When economies of scale are large, first-mover advantages are typically enhanced. The enlarged capacity of the incumbent serves as a commitment to maintain greater output following entry, with the threat of price cuts against late entrants.
The final type of benefit that first movers may enjoy comes from buyer-switching costs. If it is costly or inconvenient for a customer to switch to a new brand, the first company to gain the customer will have an advantage. Buyers will rationally stick with the first brand they encounter that performs the job adequately. Especially for consumer products, the first mover has the opportunity to shape consumer preferences and to earn customer loyalty. Satisfied consumers tend not to spend time seeking information about other products, and tend to avoid the risk of being dissatisfied if they switch. Some examples of pioneering brands in product categories include Coca-Cola soft drinks, Kleenex tissues, and Nestlé foods. These brands are known to often dominate their markets for a long time. These brand preferences appear to be more important for retail purchases by consumers than for products purchased by businesses, as businesses buy products in larger volume and have more incentive to search for lower-cost options that will contribute to an economy of scale.
Although being a first-mover can create an overwhelming advantage, in some cases products that are first to market do not succeed. These products are victims of first-mover disadvantages.