First Mover Advantage: An Opportunity for a Free Ride or a Chance to Establish Brand Loyalty?

Before we begin our discussion, let me ask you a basic question: what is the First Mover Advantage strategy?

The First Mover Advantage strategy enables a company to develop strong brand recognition along with service or product loyalty before other competitors step in. However, this strategy has some advantages and disadvantages.

But before we dig into the details, it is significant to note that this strategy only refers to a big company that moves into the market.

Amazon, for instance, was not the first one to retail books online. It, however, was the first to attain substantial scale in that business line.

Advantages of Being a First Mover

The advantages of a First Mover company are as follows:

First mover companies can often:

1. Launch their product or service as the market standard
2. Be capable of tapping into target audiences first and creating a great impression that can result in brand loyalty as well as well brand recognition
3. Control resources like creating a premium contract with key contractors, basing themselves in a strategic place, or recruiting brilliant employees.
4. Gain benefit when there is a high swapping cost for customers to switch to other competitors who entered later.

Prof. Lieberman and Montgomery (1998), in their award-winning paper, listed three key advantages of being a first mover;

1) Technology leadership

2) Control of resources

3) Buying Switching Costs

Let’s put the spotlight on them one by one:

1. Technology leadership

The first mover advantage companies can make their services, technology or product for later entrants to imitate. If the first mover, for instance, can lessen the product production costs, it can establish a definite cost advantage. Additionally, applying for exclusive rights can safeguard and create a first-mover advantage.

2. Control of resources

The 2nd advantage is the capability to control scarce and strategic resources. WalMart, for instance, was able to establish their stores in hamlets and avert competitors from entering the market.

3. Buyer-switching costs

The 3rd advantage that first mover businesses may relish is buyer-switching costs. If the company has succeeded to establish itself first, only inconvenient customers may switch to a new product or brand.

Disadvantages of Being a First Mover

At times, being the first mover in an industry may not provide any advantage to the business:

1. The first mover company may have to invest greatly in convincing customers to try a new service or product. Later entrants would take advantage of the informed consumers. It will help them to save money as they would not need to spend a huge amount on enlightening buyers.
2. Later entrants will be able to avoid making mistakes that the first mover made.
3. Later entrants can benefit if the first mover fails to attract customers to their services or products.
4. Later entrants can make the products better or cheaper as well as reverse-engineer them.
5. Identifying the areas of improvement will be easier for the later entrants and they may take advantage of it.

Lesson to Learn: Not all first-mover companies or business are rewarded, of course. It is essential for a first-mover to capitalize on its advantage, if it won’t, the first-mover disadvantages will leave opportunity for competitors to enter the market and compete more proficiently and effectively than the first-mover companies; such companies have “second-mover advantage.”

P&G – The First-mover in the Diaper Industry

If we look closely at the example of P&G in regards with First Mover Advantage, we will realize that two things, in P&G’s case, had a great impact on returns and success of a new product;

1) technical proficiency;

2) luck.

An innovative product or service has the potential to grow immensely. Technically proficient companies or business are able to produce their products better, at a lower cost with better marketing proficiency. This aspect is exemplified immaculately by P&G’s first disposable baby diaper – Pampers.

The company used materials that were low in cost yet effective, combined with the capacity to get ahead of the market through technical innovations as well as their distribution channels and general manufacturing proficiency.

As a result, P&G now rules as the unchallenged industry leader of children’s disposable diapers to the extent that the word “pampers” has mostly replaced the word diapers in general context, regardless of the brand of diapers.

How to Dominate a Niche Market

As discussed above, being a first-mover does not guarantee rewards. There are examples in front of who were not the first movers, yet they have grown to become some of the most successful companies in the world in their respective industries:

1. Google

Google has been named as the most popular search engine in the world, according to Net Marketshare. Even though search engines like Infoseek and Yahoo existed before Google, but Google, fortunately, was able to tailor their search engine to execute more proficiently and effectually.

With time and insights, Google customized its search engine to deliver unparalleled performance in terms of efficiency and aptitude. Now, it is Google alone that controls around 73% of the total search engine activity on the internet.

2. Southwest Airlines

The company entered the airline industry as a later entrant but successfully expand and became the world’s second-largest airline in regards to the total number of passengers. Southwest Airlinesplaced emphasis on an area that was ignored by other airlines – short haul flights.

3. Starbucks

Before Starbucks, there were many coffee shops across the globe. However, by focusing on making Starbucks the go-to place when you are out, the brand successfully established strong brand equity in a niche market.

Final Thoughts

Being a first-mover in any industry does not guarantee market success. Be it a first mover or a later entrant – it takes a lot of market research, technical proficiency, innovation, creativity as well as luck for a company to achieve brand loyalty and recognition.

Here, I would like to repeat myself that for a first mover, it is very important to capitalize on its advantage. Otherwise, it will become an opportunity for a free ride for a later-mover on the first-mover’s investment.

This, hence, will make them compete more proficiently than the first-mover companies as we have seen before.