Pioneers!!

Product pioneer = first firm to develop a working model or sample in a new product category Market pioneer = first firm to sell in a new product category

The first product to enter the market

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Pioneer Advantage/ The First Mover Advantage

Pioneering new markets is expensive and risky, but potentially very rewarding

because market pioneers enjoy advantages based on early market entry.

Pioneers are more likely to:

Have high market share, Survive longer market leaders in their product category

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Increasing returns suggests that timing of entry can be very important. First movers dont always have the advantage. There are a number of advantages and disadvantages to being a first mover, early follower or late entrant. These categories are defined as follows:

Overview

First movers are the first entrants to sell in a new product or service category (pioneers) Early followers are early to market but not first.

Late entrants do not enter the market until the product begins to penetrate the mass market or 4/14/12 later.

First-Mover Advantages and Disadvantages

Being a first mover can confer the advantages of:

Brand loyalty and technological leadership

First movers can build a reputation as a leader in that area of technology which can help it maintain a lead even after competition enters the arena

Preemption of scarce assets Exploiting buyer switching costs

Inertia to change increases the longer a product is around

Reaping increasing returns advantages.

First mover may rise in market power through increased returns and eventually make it the dominant design 4/14/12

Sources of Pioneer Advantage

Product-based Entry-Barriers

Economy of scale and learning can lead to lower costs for pioneers. Technological leadership can enable pioneers to consistently have better products than competitors. Cornering scare assets with long-term agreements can keep them from late entrants.

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Sources of Pioneer Advantage (contd)

Consumer-based Entry Barriers

When consumers successfully use the first product, they will continue to favor it because they know it works. The pioneer influences how consumers evaluate attributes and may become the standard for the product category. The pioneer can carve out the most profitable segment The pioneer may be able to lock-in consumers by creating high switching costs.

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First-Mover Disadvantages

Study of 50 product categories showed that market pioneers have a 47% rate of failure and a mean market share of 10%

Early followers averaged almost 3x the market share of the pioneers The market may often perceive the first movers as having the advantage but that is because of misperceptions

The first mover in the disposable diaper market was Chux. P&G didn't come on the scene until 30 years later but because Chux disappeared history was reinterpreted and P&G were thought of as the first mover.

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Cont.

Other studies show first movers earn greater revenues but lower profits because of the higher R&D expenses, development of supplier and distribution channels and marketing costs that they incur

A later entrant can capitalize on all the groundwork done by the first mover and improve upon it at less expense

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Forces Against the Pioneer Advantage

Free-rider effect: competitors introduces the same technology with lower costs. Technological discontinuities: late entrant uses superior technology to produce a better product before the pioneer. Shifts in consumers tastes: the late entrants adopt new positioning before pioneers. Incumbent inertia: pioneer is deterred from making the investments necessary to remain a market leader.

Identification of ideal points: best product may become apparent only after the first product is widely introduced. 4/14/12

First-Mover Advantages and Disadvantages

High research and development expenses

First mover spends money on exploratory research that results in failure before achieving success as well as developing complementary goods and a market A new-to-the-world technology often has no appropriate suppliers or distributors. The first mover has to develop and produce on their own or assist others in the development and production of the needed supplies

Undeveloped supply and distribution channels

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Cont.

Immature enabling technologies and complements

PDA developers had created useful palm-size devices but the battery and modem technologies needed to support the PDAs was not developed enough Since there is no way to know what features customers will want from a new technology and how much they will pay for them, first movers may have to revise their offerings when they get customer feedback

Uncertainty of customer requirements

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In the late 80s Kodak introduced the 8mm video camera expecting a large number of customers due to its design and quality. They were too expensive and consumers had not