The first-mover advantage refers to an advantage gained by a company that first introduces a product or service to the market. The first-mover advantage enables a company to establish strong brand recognition and product/service loyalty before other entrants to the market.
It is important to note that the first-mover advantage only refers to a large company that moves into a market. For example, Amazon was not the first company to sell books online. However, it was the first company to achieve significant scale in that line of business.
First movers can make their technology/product/services harder for later entrants to replicate. For example, if the first mover can reduce the costs of producing a product (an “experience” curve effect), the first mover can establish an absolute cost advantage. In addition, applying for patents can protect and establish a first-mover advantage.
2. Control of resources
The second benefit is the ability to control strategic and/or scarce resources. For example, Wal-Mart was able to locate its stores in small towns and prevent others from entering the market.
3. Buyer switching costs
The third benefit that first movers may enjoy is buyer switching costs. If the first business is able to establish itself firmly, it may be inconvenient for consumers to switch to a new brand later.
Disadvantages of Being a First Mover
Being the first business in an industry may not always guarantee an advantage.
The first mover may invest heavily in persuading consumers to try a new product. Later entrants would benefit from these informed buyers and would not need to spend as much on educating consumers.
Later entrants can avoid mistakes made by the first mover.
If the first mover is unable to capture consumers with their products, later entrants can take advantage of this.
Later entrants can reverse-engineer new products and make them better or cheaper.
Later entrants can identify areas of improvement left by the first mover and take advantage of them.
Examples of Successful Companies That Were Not First Movers
Listed below are three companies that were not first movers in their respective markets, but have now grown to become some of the biggest companies in the world:
Before Google, there were search engines such as Yahoo and Infoseek. However, Google was able to customize its search engine to perform more effectively and efficiently. They now control over 65% of search activity.
2. Southwest Airlines
Southwest Airlines entered the airline industry as a late entrant but was able to expand and become the second-largest airline in the world in terms of the total number of passengers. The company focused on an area that other airlines were not looking at – short-haul flights.
There were a lot of places to buy coffee before the establishment of Starbucks. However, Starbucks was able to establish a strong brand equity by placing an emphasis on making Starbucks the go-to place when you’re not home or at the office.
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