First Mover

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, and a follower in others.
FIRST MOVER ADVANTAGES (FMA)

Definition: Following entry, FMA arise during the period of limited competition and enhanced profitability enjoyed by the pioneering firm OR they are due to the adverse affect on follower profitability caused by the strategic positioning of a pioneering firm. When imitation is costly or occurs with long lags, early entry can be leveraged into significant long run benefits for the pioneering firm. The duration of FMA depends on the pace of imitative competition. Lack of competition for resources following entry may reduce the cost of assembling/acquiring critical resources and thereby further enhance profits.
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FIRST MOVER OPPORTUNITIES

Potential for First Mover Advantages may be found in:
New products New processes New markets
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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 overnight delivery
First Movers who failed: Bomar in calculators Sony in VCR Osborne in portable PC Docutel in automated teller machines
SOURCES OF FIRST MOVER ADVANTAGES

PROPRIETARY TECHNOLOGY
R&D and Innovation. Product or process technology can be kept proprietary through: Patents Copyrights Trade secrets Managerial and organizational innovation Learning curve
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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

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BUYER SWITCHING COSTS

Switching costs develop, among other things, when the buyer has to invest time and money in adapting to the supplier's product. These investments are lost when the switch is made. When benefits from switching to a new supplier are uncertain, risk averse buyers may face strong lock-in. Initial transaction costs Supplier specific learning over time Contractual switching costs Uncertainty about quality Compatibility
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FOLLOWER ADVANTAGES
Late-movers can free-ride on the pioneering firm's investment in technology (product and process R&D) and market development (e.g., buyer education), and thereby avoid some of the costs and uncertainties associated with early entry (e.g., resolution of market uncertainty) Technological discontinuities and inability of incumbents to adapt to a changing environment can provide "gateways" for followers
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FOLLOWER ADVANTAGES
(CONTINUED)
Free riding by late entrants

Technology Diffusion of technology may make imitation cheaper than innovation Buyer education Enhanced consumers' awareness through pioneer's advertising benefits followers Employee training Followers may hire pioneer's trained employees; followers may emerge from pioneer's employment ranks. Knowledge spillovers. Infrastructure development Pioneer's investment in developing a support industry and in obtaining regulatory approval benefits others
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FOLLOWER ADVANTAGES
First-mover technology and marketing strategy lock-in

Commitment to technology When technology uncertainty is high-- i.e., the 'industry standard' or the 'dominant design' are unsettled--first movers may be committed to the wrong technology Discontinuities in technology and in customers' needs Late entrants may be able to leapfrog the technology of the first movers, and/or use more effective marketing channels to appeal to consumers, thereby causing the market to shift away from the first movers
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FOLLOWER ADVANTAGES
(CONTINUED)
Incumbent inertia The successful first mover may be locked into its initial technological and market approach, and fail to adapt to the changing competitive environment because of: Organizational routines The firm's established view of technology or customer needs or stable exchange 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 to adapt to an emerging technology or marketing channel. Reluctance to cannibalize existing lines As compared to a follower, a first mover has less incentive to introduce new products.
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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 information FIRST 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
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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

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LESSONS FROM SUCCESSFUL PIONEERS

Exploit the sources of first mover advantages while avoiding the traps:
Preempt opportunity for entry Obtain patents or copyrights Fill positioning gap Minimize technological leakage Retain employees Develop organizational capabilities Track the evolution of customer needs Be prepared to cannibalize Maintain flexibility Study competitors
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First Mover

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WHAT IS A FIRST MOVER?

MAKE A DISTINCTION BETWEEN:

FIRST MOVER ADVANTAGES (FMA)

FIRST MOVER OPPORTUNITIES

SOURCES OF FIRST MOVER ADVANTAGES

PREEMPTION OF SCARCE RESOURCES

Preemption of market positions

Marketing and distribution channels

Preemption of consumers perceptual space

Preemptive capacity investments

BUYER SWITCHING COSTS

Free riding by late entrants

First-mover technology and marketing strategy lock-in

Source: Lieberman & Montgomery To Pioneer or Follow?: Strategy of Entry Order

LESSONS FROM SUCCESSFUL PIONEERS

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