First Movers Advantage: Benefits, Disadvantages and Examples

Later entrants find it difficult to differentiate their products from those of the initial entrant due to the slow pace of technological improvement. Even if competitors figure out a way to accomplish it, the differences aren’t great enough to prohibit the first mover from mastering it and incorporating it into its product line quickly.

What happens if, on the other hand, technology advances rapidly but the market is hesitant to absorb the new product category? A fleeting first-mover advantage is quite unlikely in this case. Early entrants endure several years of flat revenue and operational losses, as well as stock market experts’ mistrust. At the same time, the breakneck speed of technological development attracts new competitors who believe their innovations will lure customers away from the incumbent and its outmoded goods. A long-term advantage is likewise doubtful for most early entrants and most late comers.

Only a large corporation with huge funds could join such a market first, survive in its difficult environment, and endure a significant delay before gaining long-term first-mover benefits. Deep pockets enable a company to wait until the speed of technological development slows, or until the fundamentally new technology embodied in its product line becomes the new standard, and the market takes off. Of course, the corporation will require a strong R&D competence to remain at the forefront of technology in the meanwhile.

When the underlying technology of a product evolves at a rapid pace, the item quickly becomes outdated. More often than not, such items are supplanted by new entrants, who aren’t burdened by maintaining and servicing existing product lines and may innovate without concern of cannibalizing earlier investments. The phrase “vintage effects” has been used by some academics to describe the tendency of new generations of technology to usher in successful entrants.

A first-mover advantage can be simply defined as a firm’s ability to be better off than its competitors as a result of being first to market in a new product category.

What is First-Mover Advantage?

Benefits of being a first-mover

Positioning yourself as a first-mover provides a number of benefits, including:

Extensive supplier options

When your organization is the first in the marketplace with a new product, your company will often have an extensive list of suppliers to work with. You can negotiate exclusive contracts with the best manufacturers and other supply chain providers to ensure a cost-effective model that provides customers with a high-quality product.

Defining industry standards

As the first in the market, your product, and the manufacturing practices you establish, will set the industry norms as other businesses enter the marketplace. Rather than relying on standards set by another company or working within the confines of a pre-established market, your organization will define the manufacturing and marketing practices for your segment.

Developing retailer relationships

Youll build excellent relationships with a wide range of retailers as the only company in the market with your product. The more popular the product is, the more stores will want to work with you and feature your product on their shelves. When competitors enter the market, youll already have a solid position within the retail framework.

Increased brand recognition

Customers will quickly learn to associate your brand with your product since it will be the only one on the market. Brand recognition often leads to increased sales and the development of long-term customer relationships.

Establishing economies of scale

Depending on the industry, the first few months of production can be costly until your organization has found the most efficient and economical way to manufacture your product and bring it to market. Being the first in the marketplace gives you time to mold your micro-economy and establish a cost-effective system before any competitors enter the sector.

Defining customer loyalty

Some industries or products produce loyal customers due to the initial investment in the product. For example, if you sell computer software, its unlikely a customer will switch to a competitor after installing your product because the time and expense of migrating digital systems are not worth any potential cost savings. Being the first to market increases this type of necessity-driven customer loyalty.

What is the first-mover advantage?

The first-mover advantage is the benefit of increased brand recognition, customer loyalty and increased sales that often accompany a business who is the very first to enter the marketplace with a new product. In most cases, companies achieve the first-mover advantage through savvy marketing and advertising that positions their product not only as the first in its field but also as the best option for consumers when competitors inevitably arrive on the market.

Examples of first movers

First movers can occur in any industry, but they tend to be more prevalent in some fields over others. Consider these general examples of successful first movers:

Technology

The technology space is full of first movers. This field is constantly innovating and finding not only new methods for achieving goals but also entirely new products for consumers to use. Consider technological innovations like smartphones, tablets and smart speakers, all of which had an initial first mover that dominated the marketplace before competitors arrived.

Automobiles

The automotive field is another thats benefited from first movers over the years. There was, of course, the introduction of the very first car. Since then, various car makers have designed new types of vehicles and engines that entirely changed the automotive space and customer desires. Consider, for example, the introduction of the minivan or the fully electric vehicle. A single manufacturer initially created these products before competitors joined the market.

Convenience items

Convenience products are a broader category that also tends to make an impact in the first mover space. For example, consider luggage optimized for airplanes. Before air travel was ubiquitous, most travelers used large suitcases or chests to transport their personal effects from one place to another. As commercial plane travel increased, a luggage manufacturer added wheels to their suitcase to make it easier to pull through the concourse. Eventually, competitors followed suit, changing the luggage landscape.

Disadvantages of being a first-mover

Being a first-mover is not without its risks, however. Consider these disadvantages before rushing to market:

Superior competition

The biggest and most prescient disadvantage of being a first mover is the potential advantage it offers to your competitors. For example, after examining your product, a competitor might be able to reverse engineer the work youve done and create a nearly identical product much more cheaply, potentially cutting into your customer share once your competitor takes their product to market.

Rushing design

In an effort to be the very first one to sell your new product to consumers, your company might rush the design and testing stage of product development, leading to a product thats not as optimal as slower-moving competitors products might be.

Misreading pain points

Despite intensive market research, some products that companies are sure will address customer pain points turn out to be low sellers. Being first to market with a product that doesnt appeal to customers can be a costly error.

Education costs

As the first company to introduce a new product, youll likely spend a substantial amount of time and money educating your customers about the product, its uses and its benefits. Competitors entering the market after you wont have to spend their marketing budget on education, potentially increasing their share of the market.

What is a late mover?

A late mover is a company that enters the marketplace with a new product substantially after their competitors have debuted new products. Late movers often choose their timing purposefully to ensure their product is optimized to meet customer needs and can be produced as cheaply as possible to save the company money.

What is a fast follower?

A fast follower is a company that quickly imitates a first mover and enters the marketplace with a competing product as fast as possible. Fast followers hope to capitalize on the initial consumer interest in the new product and earn some of the first movers market share without investing substantial time or money in marketing or customer education.

FAQ

What is the first-mover advantage explain with an example?

First-mover advantage only refers to a significant company that moves into a market, not just any company. For example, even though Amazon.com was not the first entity to sell books on the Internet, it was the first significant company to do so (many people think Amazon was the first – it wasn’t!).

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