First Mover Advantage Definition
“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.
The competitors of first movers usually try to steal market share by following the successful strategies of the first mover. Usually, the first mover company gains the highest market share and a wider customer base than later competitors.
A Little More on What is First Mover Advantage
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 product’s 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.
References for First Mover Advantage
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.
First‐mover 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 first‐mover firms. Major conceptual issues are addressed, and recommendations are given for future research. Managerial implications are also discussed.