MARKET ENTRANT THEORIES

First Mover and Late Mover Theories

Abstract

In this study we try to explore the concept of Market Entrant Theories in a holistic context. The main focus of the research is on Market Entrant Theories and its relation with First and Late Mover firms.

Table of Contents

Abstract2

Introduction4

Description and Analysis5

First Mover Advantages8

Late Mover Advantages8

First Mover Disadvantages9

Late Mover Disadvantages9

Examples of the Companies10

First Movers' Success10

Late Movers' Failure10

First Movers' Failure10

Late Movers' Success10

Conclusion11

References12

First Mover and Late Mover Theories

Introduction

This study examines innovation lead time, the construct believed to be the key determinant of launch order strategic value. Anecdotal evidence has suggested that innovation lead times are continuing to decrease as the result of new product development acceleration strategies. However, broad scale empirical evidence regarding product launches since 1984 has not been forthcoming. Innovation is a vital ingredient in the survival and success of firms.

Innovation in new products and services enables the development of durable first-mover advantage by supporting the creation of isolating mechanisms such as proprietary technology, switching cost hurdles, and resource preemption that slow down competitive reaction and increase innovation lead time. Innovative followers can reduce the lead time enjoyed by first movers by using technological advances to speed up the pace of change and facilitate transference of knowledge. In this way, fast followers can respond more quickly to pioneering action, giving the earlier mover less time to establish consumer preference, dominate distribution channels, and create other structural barriers to competition.

Description and Analysis

Innovation designed to speed up response to pioneering innovation has been a powerful force from the industrial revolution forward. The benefits that first movers create are realized only to the extent that temporal strategic barriers can be activated and maintained. If lead times are still decreasing significantly, then temporal barriers must not be as robust as previously established and calls into question the relevancy and impact of the pioneering strategy to grow the business. Under these changing environmental conditions, a rapid follower strategy may be just as effective.

But what happens to the second mover when a third mover enters the market? Does the second mover enjoy stability in lead time so as to establish its second-mover position and reap the benefits of a stable market? Is second mover lead time declining as quickly as first-mover lead time? To date, there have been no empirical studies of second-mover lead time, and consequently, it is difficult to determine whether the "fast-second" strategic approach is gaining in viability (Michael, 2001).

Given the weight of evidence provided in economic, management, and marketing literature, being first to market (pioneering) would seem to be an excellent strategy for a firm to employ. The literature suggests that a negative relationship exists between order of market entry and market share, and further research indicates that increased lead times can enhance first-mover market share advantages. Consequently, first movers should achieve higher market share than followers.

The effectiveness of entry barriers in deterring competitor entry and the length of time first movers are able to earn monopoly-like profits depend largely on the first mover's ability to impede competitive reaction. Consequently, early movers will attempt to engage in product and market innovation strategies that increase structural barriers between themselves and subsequent ...