Posted in Marketing and Strategy Terms, Total Reads: 554
Definition: First Mover Advantage
It refers to business advantage over the potential competitors. Being first in the market always gives an early opportunity to build brand name and make loyal customers. There are many examples of firms that used this advantage well e.g. Gillette in razors, eBay in online auction process, Coca-Cola as first cola producer, Sony in personal stereos etc.
But there are companies that couldn’t take this advantage and failed in the past e.g. Xerox in fax machines, Sony in home VCRs etc. It shows that it’s not only the being the first mover but also other circumstances play their own role in the success of a firm. The major disadvantages of being first mover involve uncertainty in demand, high cost of development and risk of adopting an outdated standard (say, beta version).
The several ways through which first mover advantage can be taken, are as follows:
• Technology leadership
• Product leadership in a new geographical territory
• Control of resources
• Increase buyers switching cost
First movers generally have an edge over others as they can set standards in their area. They can increase the entry barrier through the use of patents. They also have advantage in terms of setting price for products. The major advantage comes from early start of their learning curve as with time, they can improve their processes, minimize costs and build knowledge base.
Example: Amazon.com started as first online book store and had first mover advantage over potential new entrants. It partnered with big wholesalers in book category and also expanded its offerings in other categories like apparels, toys, electronics etc, developing itself as one stop online shop for its customers. In this way, it kept its first mover advantage intact, created loyal customers and decreased bargaining power of early suppliers. It also emerged as powerful brand in online retailing.