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.
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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.
Related Topics
- What is Strategy?
- What is Business Strategy?
- What is Management Strategy [Strategic Management]?
- Types of Business Strategy?
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Competitive Advantage
- First Mover Advantage Definition
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Organizational Dynamics
- Synergy - Definition
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Business Model Overview
- Business Model Canvas - Explained
- Razor Blade Business Model
- Click and Mortar Model
- How Management Develops a Strategic Plan
- Mintzberg's 5 Ps of Strategy
First-mover advantage is the idea that a business can gain competitive advantages by being the first to market, either with an entirely new concept or an innovative disruption in an existing industry.
The argument for first-mover advantage is that arriving before anyone else allows you to establish a beachhead of brand recognition, customer loyalty, and early market share.
Technology moves quickly. Even when companies do a great job of analyzing competition, a first-mover with no competitors today could easily have competitors tomorrow. After all, if your team was able to come up with your idea and build your product, there’s a very good chance that there are twenty other teams all around the world who could be working on the same idea and product.
I learned this the hard way, as a board member of a company [which I later ran] that launched a new product in 2008. At launch, there were two competitors in the marketplace, both of which with products that were significantly different from ours. We believed we had clear sailing ahead of us.
Six months later, there were more than 20 competitors in the market, and a new competitor seemed to appear every week. Some of the new entrants to the market had good products—and some of those new products were free.
The flurry of new competitors did not cause us to shut down the business, but it did make our work a lot harder than we expected based on our perceived first-mover advantage. Our team spent years trying to push the rock up the hill. We did eventually build a business, but we were unable to produce a successful financial result for the owners.
Our first-mover advantage was no advantage at all.
Are there situations in which being a first mover may be a significant bar to future competitors? I think the answer is yes, but it probably doesn’t happen as often as entrepreneurs might wish.
Here are five situations in which the first-mover might truly have an advantage significant enough to hinder later competitors:
- Your product has a technological advantage that is difficult for other competitors to match [either because of the difficulty of replicating it or because of patent protection], or you have an inherent cost advantage in producing the product that other competitors cannot match.
- Your product is particularly well-suited to a subset of the overall market that is big enough to be interesting to you, but not so big as to draw numerous other competitors.
- Through agreements you secure early, exclusive access to key distribution partners or supplier partners that your competitors will be precluded from working with.
- You can reach sales agreements quickly with large, important customers in your market that will be influential on purchase decisions by other potential customers.
- Your product is easy to adopt and sticky, and you can quickly and inexpensively create a network of users that will find it difficult to leave once they adopt it.
There may well be some other examples of situations where the first mover truly has an advantage, but you get the point: Just because you get to market first with a product does not mean you won’t be bludgeoned by later competitors.