First Mover Versus Improver: How Market Entry Timings Affect Your Bottom Line
There is a certain allure to being the pioneer. The first achievers often make it to the annals of history: humanity’s first step on the moon, first flight, first to reach the top of Mount Everest, first smartphone. Yet it offers no guarantee for enduring success.
If you are planning to start a new business venture, you will need to consider your choice of niche and the timing of your entry. Should you make the first move in introducing a groundbreaking idea, something the world has never seen before? Or should you ride the coattails of the market pioneers?
The truth is that both first and late movers have distinct advantages and drawbacks. Read on to learn whether your business idea and situation favor being the first or being the second.
Loyalty and Legacy: Defining the First Mover Advantage
From a business standpoint, first movers do not necessarily refer to the inventors. Instead, they describe the first significant firms to gain early entry into a new market. The set of benefits that first-movers enjoy, whether as a result of brilliant skills or sheer luck, or a combination of both, is called the first-mover advantage (FMA).
Being the first to connect with consumers and make a strong impression, first movers tend to shape consumer tastes and preferences, establish robust brand recognition, and build brand loyalty. Even better, market pioneers can set the industry standards and trends accordingly.
Case in point: when Apple launched the iPhone in 2007, they redefined the way the world interacted with smartphones—they introduced the first touchscreen-reliant mobile phone when everyone was using the physical QWERTY keyboards. Since then, Apple’s stock value continues to grow.
In addition, first movers can completely control resources by hiring the best talent, initiating premium contracts with key suppliers, and setting up their business in strategic locations before competitors can enter the market.
Overall, the first-mover strategy comes with high initial costs and risks but yields significant potential payoffs and an irreplaceable legacy that can span decades.
The Core Advantages of Being the First Mover
The award-winning 1988 paper by Professors Marvin Lieberman and David Montgomery perfectly reflects upon and sums up the top three benefits of being the first mover:
Late entrants cannot simply copy the work of the first movers and expect the same results. Pioneers can deliberately make their product or service harder for late movers to mimic. Applying for patents ensures first-movers can protect their brand from being replicated by future competitors.
The Power of Buyer Switching Costs
If first-movers successfully establish their hold on the market, they can take advantage of the high cost of customers changing brands when competitors finally come in. A case in point: Companies using Windows computers may be less willing to switch to a rival operating system because of retraining costs.
Monopoly Over Scarce Resources
Being a first-mover means gaining the upper hand when procuring resources in a cost-efficient manner, especially if they are scarce, to begin with. First-movers can establish exclusive deals and production or distribution rights from manufacturers and suppliers, making it hard for new entrants to find their own sources.
The Pitfalls of Being the Market Pioneer
While first movers have an undeniably overwhelming advantage, not all market pioneers succeed. As with any new endeavor, being the first to market a wildly innovative idea is a gamble. Will consumers view their product or service as valuable? Is it a problem worth solving? Will customers buy it?
The first-mover disadvantage is not simply a matter of the novelty effect wearing off, but rather:
Pioneering is Expensive
As first-movers, they are responsible for creating the product category and, therefore, the demand in the market. That requires heavily investing in research and development, paying for any mistakes made in the path to success, and spending a lot of money advertising the product and persuading consumers.
Rapidly-Evolving Technology can Render First-Movers Obsolete
If a first-mover belongs in an industry wherein technology frequently changes, such as in the software industry, they can fall behind. Fortunately, first-movers can prevent this if they can adapt to the latest technologies.
Succeeding Movers can Imitate Technical Knowledge
The first to discover is not always the last man standing. Even when patents are in place, if late entrants can discover a new way to improve and add on a first-mover’s technical expertise, skills, and techniques, they may be able to remove the first-mover from the market successfully.
Becoming the Ultimate Competitor: The Late Mover Advantage
For every first-mover success story, there is a second-mover winning in their niche. Friendster and Yahoo are a few examples of market pioneers that eventually lost out to second movers like Facebook and Google, respectively.
Second movers, also known as improvers and late movers, capitalize on learning from the mistakes of their predecessors and improving upon an already existing, familiar market.
They can reverse-engineer new products to make them better and cheaper, eventually capturing the first movers’ market share. It also pays to enter a marketplace that has already been researched and educated by the market pioneers. Moreover, it costs 60 to 70 percent less to replicate than to create.
Why Second Mover Status Can Make For Great Companies
When searching for new business opportunities, firms do not always have to find a new problem to solve. Taking the time to look at an existing problem with fresh eyes and providing a similar but enhanced solution could also lead to highly profitable results. By embracing the role of the second mover, companies can enjoy:
Easier Customer Development and Acquisition
Market pioneers need to find what customers want the hard way. At the same time, second movers can rely on this information to identify the problems worth solving and the solutions consumers view as valuable.
Successful customer acquisition is often the result of tests involving multiple channels. Since first movers have already paved the way for late entrants, second movers can use tried, tested, proven, and repeatable strategies to develop effective marketing tactics and acquire leads and buyers for higher sales and profit.
Smart Product Management
Successful market pioneers test, analyze, and optimize the product, service, or technology to learn what works best. This saves time for second movers, who can readily utilize the most optimized product management tools, such as copywriting, onboarding flows, call to actions (CTAs), and more.
Buyer Trust and Know-How in the Product
Consumers can be skeptical about new products, services, and technologies. When early entrants have already educated the consumers about the value of the product, second movers can take advantage of this invaluable foundation, especially if it is a market where customers have high loyalty to an existing but inferior or more expensive solution.
Late Mover Disadvantages
If second movers have the luxury of free-riding on the achievements of the market pioneers, what could make this safer strategy fail? Here are three reasons why.
Late Movers Must Always Keep Up
In a world where new technologies emerge almost overnight, second movers must never be complacent. First movers who have continued being successful evolve and adapt, and second movers should do so. Consequently, late movers may have to attempt to design innovative products to keep consumers engaged.
Market Pioneers Establish Entry Barriers
Market pioneers tend to create entry barriers to the dominated markets, especially in highly regulated fields. Such is the case in the FinTech industry, where new players need to partner with Visa, MasterCard, and other existing institutions before they can offer their products and services.
Second Movers Face Challenges in Customer Loyalty
Customers tend to be loyal to pioneering products. Second movers need to find ways to bring these consumers to their side. Otherwise, they would have to spend time, money, and effort to find markets untouched by the first movers, if there are any.
While Apple bagged the first-mover advantage, it gained a worthy rival: Samsung. These two smartphone giants, the pioneer, and the late mover have successfully become global players and household names. Ultimately, both market entry timings affect a company’s strategic options, opportunities, and market power.