First-mover advantage

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First-mover advantage is the advantage gained by the initial occupant of a market segment. This advantage may stem from the fact that the first entrant can gain control of resources that followers may not be able to match. ^[1] Sometimes the first mover is not able to capitalise on its advantage, leaving the opportunity for another firm to gain second-mover advantage.

Contents 1 First-mover advantage 2 Second-mover advantage 3 Books 4 References 5 External links

[edit] First-mover advantage

There are several advantages that can be gained from entering first:^[1]

• Scarce resources can be preempted, e.g. occupation of prime retail locations
• Early profits can be re-invested in improving the resource base
• Reputation will likely have the advantages that come from suppliers, distributors and customers who are familiar with and loyal to their products.

Nevertheless, there are two obvious drawbacks to being the first mover: cost and risk. Not only is it expensive to be a pioneer, but it is risky, as the first company in a particular market cannot benefit from knowledge of successes and mistakes of others.

[edit] Second-mover advantage

First movers are not always able to benefit from being first. Whereas firms who are the first to enter the market with a new product can gain substantial market share due to lack of competition, sometimes their efforts fail. Second-mover advantage occurs when a firm who follows the lead of the first-mover is actually able to capture greater market share, despite having entered late.

First-mover firms often face high research and development costs and the marketing costs necessary to educate the public about a new type of product. A second-mover firm can learn from the experiences of the first mover firm and may not face such high research and development costs if they are able create their own similar product using existing technology. A second-mover firm also does not face the marketing task of having to educate the public about the new project because the first mover has already done so. As a result, the second-mover can use its resources to focus on making a superior product or out-marketing the first mover.

Often times second-movers are able to overwhelm first movers by taking the first-mover’s product from a niche consumer market to mass markets. While firms may enjoy a first-mover advantage if they jump out to an early lead and hold onto it, the notion that winners are always the first to enter the market is a myth.

The following are a few examples of first-movers whose market share was subsequently eroded by second-movers:

• Atari vs. Nintendo;
• Apple’s Newton PDA vs. Palm Pilot PDA;
• Charles Stack Online Bookstore vs. Amazon.com.

Second mover firms are sometimes called "fast followers".

Obviously, every market is different. Thus, while some markets may highly reward first movers, others may not.

[edit] Books

• Fast second, by Paul Geroski and Constantinos Markides

[edit] References

1. ^ ^{a b} Grant, Robert M. (2003). Contemporary strategy analysis. USA,UK,Australia,Germany: Blackwell publishing. ISBN 0-631-23135.

[edit] External links

• The Myth of First-Mover Advantage - An article that discusses whether the First-Mover Advantage always leads to commercial success in the high-tech industry.
• http://www.marketingterms.com/dictionary/first_mover_advantage/
• http://www.ftmastering.com/mmo/mmo07_6.htm