The success of a product in the market is determined by many factors. The choice of strategy is a very important factor for any company. Business organizations are embracing creativity and innovation in their products with the ever dynamic consumer needs. It is important that these important business terms be looked into before making a strategic decision. In this case, our company is faced with two choices on either to come up with a completely new product or a version of a competitor's product that has already been launched. Either alternative has merits and demerits that need to be examined before deciding on a particular strategy.
Deciding on a completely new product would mean that the company is considering a first mover theory. The first mover theory argues that whoever comes first in the competitive environment with scarcity creates value in the market and has a greater chance of achieving success. The motivation to be the first in the market with a product should be guided by an economic concept known as the first mover advantage. (Lieberman,1988)
Advantages of first mover theory
Acquisition of resources
The company stands to benefit in acquiring resources more than the competitors. Physical resources have become scarce in most markets but with the creation of a new product, the first mover can acquire such assets before other movers come in. Assets such as the geographical location of the company can play a very important role in the marketing of the company with the new product. Another aspect concerns making the brand present in the minds of the customers for the first time. This may influence the customers to a great extent such that they would always be remembering the first brand to arrive in their market. Acquisition of resources such as raw materials for producing the new product might favor first movers because they might be expensive in future with the coming of more players in the market. Human resources might also be in favor of the early movers. The company can capitalize on monopoly and acquire and train human resources who are in this case mobile and prevent increased costs of hiring when the industry starts facing competition. Coca cola is a perfect example of a successful pioneer that acquired resources and penetrated markets. (Lieberman, 1988)
The first use of technology to develop a new product in this era of globalization gives the first mover an advantage. The faster a company moves into the market with a new product the better. As competitors start thinking of catching up with the technology, the first mover would have moved miles away to profitability. As a pioneer company, it becomes so easy to amass greater volumes of knowledge than the competitors. When it comes to innovations in product development and even the management of the product, the pioneer company would save a lot than for the competitors. EBay company was a pioneer in applying technology to auctions. (Lieberman, 1988)
The consumer cost switching
The first movers benefit from the switching cost of consumers if it gets hold of consumers fast. As it is known in various markets, consumers demonstrate the behavior of loyalty to some company brands. If the pioneer capitalizes on the loyalty of consumers by providing quality products that can be relied on for a long time, then it would be more risky for the consumers to move to competitors when they come in. The switching cost, therefore, enhances the market share of the first movers before the competitors arrive to struggle for their portion. (Lieberman,1988)
Consumer choice under uncertainty
The first movers benefit from the advantage of buyers choosing their brand because of lack of an alternative. The choice of buyers is in most cases full of uncertainty but they choose the first move any way. Through the uncertainty, the first mover can establish a good reputation for quality amongst the consumers. This can be later on transferred to other products that are introduced in later times by the same company. AT&T company offers a perfect example of this advantage.
Disadvantages of first movers
Free riders effects
The first movers can use a lot of resources to set up the new product in the market but this would, later on, be enjoyed by other companies when they come in. This can be in ways such as developing the infrastructure and educating the buyers on the market. The second movers can capitalize on the already established systems to make improvements on the product and gain a competitive advantage over the first movers. Considering the cost of innovation, the first-mover firm would spend more to create a new product, unlike the competitor who would come in later with imitations and spend less. The free rider effects can reduce the durability and magnitude of the first mover. The second mover firms can always decide to exploit the labor screening performed by the first mover companies. This can make them take away the best employees and leave the first movers to look for more. (Lieberman,1988)
Shifting of consumer needs and technology
Technology has the effect of creative destruction on the first-mover firms. This can be viewed from the perspective of new firms coming up with innovations that supersede the products that were generated by the first mover firms. The gaps existing in technology can also be exploited by the new firms to the loss of the incumbent first movers. Changes in lifestyles and environment bring about changes in consumer needs. If the first mover firm is not alert, chances are high for the second movers to come in and provide solutions hence winning the confidence of consumers.
First mover inertia
The first mover can also be made vulnerable by problems associated with inertia. This can be brought about by sticking to a specific first set of assets and not considering other alternatives. The trouble comes in when the assets are not meeting the expectations. Inertia can also be brought about by the lack of flexibility on various issues such as product development. The problem of inertia can make an organization to lack a response to environmental changes and threats from the competitors. A first mover is less likely to carry out innovations on products and this is likely to result in adverse effects of inertia.
Market uncertainty and technology resolution
First entry firms normally have to wait for a long time for the market to resolve on technology and other aspects of products. The second movers can just come in after technology and market resolution and gain competitive advantage more than the first movers. If a firm is small, then it becomes very difficult to wait for the resolution when there is an internal pressure to maximize profits.
Advantages of later mover theory
Free rider effects
Second movers can benefit from the already established conducive business environment established by the pioneers. This can be in terms of technology and infrastructure that are established by the pioneer firms when they venture in the market. When the later movers come in they would find the consumers already educated and can carry out only a few campaigns to bring in their products. Free rider effects also come in the form of reduced costs of launching products. The cost of making imitations on the pioneer's products is low. By the time the later movers come in , the pioneer firm would have undertaken the donkey work of screening for the best employees to facilitate processes. Late mover, therefore, exploits the advantage of sourcing for low-cost skilled labor from the marketplace. Android has become successful more than early entrants like Apple in the I phone operating system industry
The later movers, therefore, can save a lot with the free rider effects
Market uncertainty and technological resolution
The later movers can gain competitive advantage when the pioneers are still waiting to resolve technology and the market uncertainty. This can be achieved through innovation of the current products to come up with new low cost products using more efficient technology. By ensuring low cost production processes, later movers have the potential of resolving the market uncertainty while the pioneer firm is still contemplating or concentrating on profits. Large firms with massive resources can move in the market at later stages and have a lot of influence on the technology and market uncertainty. They, therefore, gain the competitive edge over the pioneers. Late movers also have the potential of moving in with dominant designs that take over the market from the pioneers.
Shifts in customer needs and technology
The consumer needs are dynamic and need to be taken care of by firms. Later movers can exploit the changing needs of consumers and come up with superior products that can supersede the products of the pioneers in the market. Emerging needs in the consumers can create an opportunity for the new entrants to exploit the market that has already been opened by the pioneers. This is achieved through creativity and innovations on existing products. The new entrants can also exploit technological gateways to gain competitive advantage. This can happen particularly if such firms have massive resources and are willing to invest in technology. IBM was a new entrant when it first commercialized laser printers that had been pioneered by Xerox.
The new entrants can exploit the opportunity created by the inertia of the incumbent pioneers to come up with better products. The incumbent firm might be enjoying the profits and monopoly but with fewer innovations in products. The new entrants can use the opportunity and influence the buyers using different strategies. High flexibility in the new entrants can be a very crucial aspect of success. This is by virtue of the fact that the incumbent might be having structural rigidness hence inability to maneuver. Some pioneer organizations become unsustainable when competition becomes stiff and changes in technology happen. The new entrants can take bold steps with technology and resources to take over the market share. HP has become the leader in the printing market coming after early movers like Xerox.
Disadvantages of Late mover theory
Low market share potential
There is a high possibility that late movers would find the pioneers already established and taken hold of all the market share. This is particularly the case when the pioneers have massive resources at their disposal to invest in the market. The new entrants, in this case, can encounter a had time to gain competitive advantage based on the fact that their market share is too low compared to the pioneers. The loss of potential market share is a big disadvantage to the late movers. Consumers can also be hesitant to try the products from the late movers and this can frustrate the efforts to get hold of the market share. (Hoppe, 2000).
Shifting consumer needs
Consumer needs and behavior are changing every now and then. This could turn out to be a very big disadvantage to the late movers. This can be viewed from the perspective of spending more to lure customers. Late mover firms might be forced into cost cutting measures to fend off the increasing costs of advertising and production in an effort to win confidence and loyalty from the market. The late movers can also opt to set their prices very low just to attract the consumers to their products. Shifting costs of other factors can also make it difficult for the late movers. The cost of resources such as software's might have increased hence making the late entrants dig deep in their pockets to survive in the industry. (Hoppe, 2000).
Technological changes and leadership
New entrants in the market might not be having the necessary stability to adjust to changes in technology and might be forced to go down when the shocks come in. There are cases when first mover firms have become leaders in technology and not a single new entrant can outperform them simply because they are leaders in their area and they are making good use of technology. New entrants in the Computer Operating systems industry have not been successful like Microsoft which is the leader. Examples are the likes of Ubuntu and Linux operating systems which have been outperformed by Microsoft because of technology. The process of technology leaking is slow as a compared to product information leaks that have seen the success of some late movers. But where there is a tight seal, the second movers find it so hard to compete with the pioneers. (Hoppe, 2000).
In some markets, second movers cannot take foot simply because they are completely dominated by the first movers. This phenomenon is brought about by constraints in costs of infrastructure and other capital costs. This means that once the first mover is established in such a market, no second mover can come in late and become successful. This is a common feature in the service industry like in the case of electricity, oil and water companies in many countries. It becomes very difficult for second movers to come in and gain competitive advantage especially when the first movers were influenced politically. A good example is offered by Google which was the first mover in the internet search engine industry. It is very hard for late movers like the ask.com to take over the industry and they have ended up being followers. (Tyagi,2000)
It would be important for the organization to explore the existing products and choose one of them and develop it to satisfy the needs of consumers. In this case, the late mover theory would be the most suitable. Creativity and innovation would be very useful in this case and they would result in a new product that would improve the competitive advantage. The organization can make use of technology to carry out innovations on existing products and penetrate the market. By moving in as a new entrant, the organization stands to benefit from the free rider effects in the market. This means that the cost of implementing the strategy would be less than that of the pioneers. Beating the pioneers at their own game would not be an easy task but with technology and innovation, the organization would be able to overtake the pioneers. (Hoppe, 2000). Without innovations in the already existing computer products, companies such as Android and hp would not have attained success in their industries. In the use of strategy design components, good practice entails using fair means to carry out innovations. It also concerns notifying the competitors on the intended use of the products. Bad practice would involve making imitations of current products that do not need expectations from the market.