7. First Mover
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Transcript of 7. First Mover
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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.
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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.
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FIRST MOVER
OPPORTUNITIES
Potential for First Mover Advantagesmay 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 overnightdelivery
First Movers who failed:
Bomar in calculators
Sony in VCR
Osborne in portable PC
Docutel in automated tellermachines
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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
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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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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
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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
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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
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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' 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
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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.
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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 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
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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
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