First-Mover Advantage - Explained
What is a First Mover Advantage?
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Table of ContentsWhat is First Mover Advantage?How does First Mover Advantage Work?First Mover DisadvantagesAcademic Research on First Mover Advantage
What is First Mover Advantage?
First-to-market advantage means that the initial occupier of a strategic position or niche takes control of resources and capabilities that cannot be matched by market competitors. A first-mover product or service is the first of its kinds in a given market.
The company can form a strong brand footprint and earn customer loyalty before competitors enter the market. It also helps the company rectify faults in the product or service and set competitive market prices.
How does First Mover Advantage Work?
Businesses that enjoy first mover advantage are usually innovative startup companies, such as Uber and AirB&B. Uber was the first loose network of contractor drivers. AirB&B used a similar model to market personal living spaces to interested renters. As a first mover, a company gains unmatched advantages that often serve to stabilize its market position, including:
- Buyer and Supplier Relationship - Establishing the best suppliers and retailers.
- Standards - It has the power to set industry practices.
- Brand recognition - Brand recognition not only makes existing customers loyal, it also helps in gaining new customers and diversifying offerings.
- Economies of Scale - First Movers gain economies of scale, meaning that they effectuate cost-efficient processes of manufacturing
- Switching Costs - Customers buying from first movers are less likely to switch to competitors. For instance, the company having Windows OS in place as a current system would not easily switch to another OS as it will have to bear the related costs that also include employee retention cost.
First Mover Disadvantages
There are some disadvantages to be the first mover in a new market. First, its competitors can exploit the experiences of the first mover and improve their offerings; thus, they can capture market share more easily. Being the first mover, a business often neglects a products specification and goes for mass production. If the first mover fails, the incoming entrants take the lessons learned to align their offerings accordingly. There is a huge difference between creation cost and imitation cost. The cost for new offering development is 60% to 75% higher than replicating a system or a product.
Academic Research on First Mover Advantage
- First-mover advantage: A synthesis, conceptual framework, and research propositions, Kerin, R. A., Varadarajan, P. R., & Peterson, R. A. (1992). The Journal of Marketing, 33-52. This paper analyses studies that advance the notion that first movers achieve long-term competitive advantages. These studies purport to demonstrate the presence of a systematic direct relationship between order of entry for products, brands, or businesses and market share. This paper does not see these findings to be true. Thus, a conceptual framework identifying factors that underlie first-mover advantage and product-market contingencies that moderate the order of entry-competitive advantage relationship is proffered. Several research propositions relevant for marketing theory and practice are presented in this paper.
- Firstmover advantages, Lieberman, M. B., & Montgomery, D. B. (1988). Strategic management journal,9(S1), 41-58. This article surveys the theoretical and empirical literature on mechanisms that confer advantages and disadvantages on firstmover firms. Major conceptual issues are addressed, and recommendations are given for future research. Managerial implications are also discussed.
- Can first moverand early mover advantages be sustained in an industry with low barriers to entry/imitation?, Makadok, R. (1998). Strategic management journal,19(7), 683-696. This study examines whether firstmover and earlymover advantages can be sustained in an industry where the barriers to entry are generally low and new product innovations can be easily imitatednamely, the money market mutual fund industry. The paper aims to show that firstmovers and earlymovers enjoy both a highly sustainable pricing advantage and a moderately sustainable market share advantage using simultaneousequation supplyanddemand model of panel data from a variety of money market fund product categories.
- The role of environmental dynamics in building afirst moveradvantage theory, Suarez, F. F., & Lanzolla, G. (2007).Academy of Management Review,32(2), 377-392. This paper advances the first mover advantage (FMA) theory by examining how the pace of market evolution and technology evolution potentially enables or disables FMA.
- First moveradvantages in international business and firmspecific political resources, Frynas, J. G., Mellahi, K., & Pigman, G. A. (2006). Strategic Management Journal,27(4), 321-345. In this context, this article aims to add the political mechanism to the current classification of first mover advantages (FMA) mechanisms. The article further serves as a window to an understanding of the longterm process of acquiring, sustaining, and exploiting firmspecific political resources in international business, which has been neglected in prior studies on businessgovernment relations. The article proposes a model for understanding the link between FMAs and political resources.
- First moveradvantages in investing in transitional economies, Luo, Y., & Peng, M. W. (1998).Thunderbird International Business Review,40(2), 141-163. This article uses the experience of foreign investors in China to shed light on the question of whether an early mover or a late mover strategy will result in better performance in the Chinese, Eastern Europe, and post-Soviet market-based system characterized by both potential opportunities and tremendous uncertainties and difficulties.`
- Maintainability of first mover advantages when environmental regulations differ between countries, Nehrt, C. (1998). Academy of Management Review,23(1), 77-97. This paper explores the complaints by companies in different countries on the unfairness of having to compete against foreign rivals facing more lenient environmental regulations. In this article, the author examines the competitive conditions for firms in such a position. Development of a new pollution-reduction paradigm centered on lowering costs by reducing pollution is outlined.
- First moveradvantage through franchising, Michael, S. C. (2003). Journal of business venturing,18(1), 61-80. This paper analyses the concept of first mover advantages through franchising. This paper focuses on whether and how first mover advantage is created through this technique. This is achieved using formulated structural equations models and empirical results from the restaurant industry. Implications for research and practice are discussed.
- First-moveradvantages from pioneering new markets: A survey of empirical evidence, Robinson, W. T., Kalyanaram, G., & Urban, G. L. (1994). Review of Industrial Organization,9(1), 1-23. This study finds that market pioneers follow innovative strategies that have high initial costs and risks, but yield high potential returns.
- First-moveradvantages and path dependence, Mueller, D. C. (1997). International Journal of Industrial Organization,15(6), 827-850. This paper advances the belief that the onne or two firms who emerge as industry leaders are usually the first to enter into the industry. This paper further identifies four categories of first mover advantage related to demand and supply factors, and link these concepts to that of path dependence.
- Does it pay to be afirst moverin e. commerce? The case of Amazon. com, Mellahi, K., & Johnson, M. (2000). Management Decision,38(7), 445-452. Using Amazon.com as a case study, the present research explores first mover (dis)advantages in eCommerce. It examines whether or not Amazon.com has sustained early mover advantages. Evidence generated from the case study suggests that the maintainability of first mover advantages in eCommerce depends on three main factors: continuous innovation, speed of implementation and patenting.
- First-mover advantage and the speed of competitive entry, 18871986, Agarwal, R., & Gort, M. (2001). The Journal of Law and Economics,44(1), 161-177. This paper aims to show that changes in the duration of interval between commercial introduction of a new product and the time when entry by later competitors begins results from the lowering of absolute cost advantages of first movers, and the growth of market. This is achieved by using data from historical changes between 1887-1986