First Mover Advantage: Definition, Importance, Advantages
Table of Contents
WHAT IS THE FIRST-MOVER ADVANTAGE?
First mover advantage is a term used to describe the benefits of being the first company in a market segment. It can be used for an entire company or a particular product or service offering. This article will look at how the mover benefits and what it can mean for the company.
- In the business world, however, even the most minor profit can make a huge difference.
- First movers can convert their initial profit into a long-term economic cost. However, they are also at the risk of overestimating those benefits. Development in the market or the technology used to serve it can eliminate the work of product development and the market in the first place. Even with these two forces interfering, the first-mover advantage wears out over time if a company becomes unconscious in advancing its technology and strengthening its price competitiveness. first-mover or not.
How does the first surcharge benefit work?
- Being the first company to offer a product or service often comes with an uneven combination of risks and rewards. The chances are relatively well known, including difficulties marketing something new to customers, potentially leading to adverse market reactions. To expand into seemingly unrelated business forms to their original productions and so on. Simply put, there are many obstacles in the way of launching anything really new—but if you can pull it off, the rewards are immense.
- The first movers involved in the market profit from learning, network effects, size, and reach. Understanding is the advantage first movers get through producing perfect or delivering a service. Being first-timers will give them an edge as they become more efficient over time. Network effects explain the impact of a large segment of customers.
- If the product or service increases in value as more people start to buy, use, or engage in it—think social media platforms, online games, etc.—then time is again in favor of early entry. A first mover has the ability to use extensive bullish strategies to quickly capitalize on economies of scale, hence the size advantage. Finally, we have the accessibility advantage where the first market move can elevate key assets including location, technology, and people.
UNDERSTANDING THE IMPORTANCE OF THE FIRST-MOVER ADVANTAGE OF BUSINESS ENVIRONMENT
- Enabling identification of opportunities and obtaining first-mover advantage
- Help with identification of hazards and early warning signals or radar effects
- Harnessing helpful resources
- Coping with rapid change
- Planning and policy Creation Support
- Performance Improvement
- Image Creation.
Every business firm has to exist, exist and grow concerning the various strengths of the business environment. Since business firms have no control over these forces, they have to adapt themselves according to them.
Enabling Identification of Opportunities and Gaining First Mover Advantage
- The business environment provides many opportunities for firms to improve their performance. Companies that can scan these opportunities at an early stage get maximum profit and can outperform their competitors.
- For example, scientific research has come to the fore with an energy-efficient light bulb that is at least 20 times longer than a normal bulb. General Electric and Philips had recognized this discovery and are coming up with their new bulbs.
Helping in the identification of hazards and early warning signals or radar effects
- Understanding the environment helps an enterprise identify qualitative information in advance, which can be used to prepare it to face potential challenges.
- For example, if any new MNC is entering the Indian market, the manager of the Indian firms dealing with the same product as the MNC should take it as a warning sign. He should handle this threat proactively and thoroughly before the product launch of the MNC, take measures like improving the quality of the product, heavy products, etc.
Harnessing Useful Resources
- Business requires many resources like raw materials, equipment, finance, labor, etc., to carry out business activities. These resources are known as inputs. The business environment provides all these investments to the business firms to carry out their activities and expects some in return.
- Firms supply their production for the environment, for example, goods and services to the customer, payments to investors based on the money they have invested, wages paid to workers, etc. Thus, we can say that business firms are entirely dependent on the environment to supply inputs and obtain their outputs.
Copy with fast turnaround:
- The business environment is very dynamic. New technologies, fragmented markets, more demanding customers, heavy global competition, and so on can see changes. Thus, to cope with these changes efficiently, managers must understand the environment and adopt the appropriate course of action at the right time. It helps the management to become more responsive to the changing needs of the customers. As a result, they can respond effectively to such changes.
To assist in planning and policymaking:
- The business environment brings both threats and opportunities to the business. Therefore, the understanding of the environment helps the management in future planning and decision making. For example, competition increases with the entry of new firms into the market.
- Management has to draft new plans and policies to deal with new competitors. Environmental awareness provides intellectual stimulation to planners in their decision-making. They can make changes in their projects efficiently and effectively.
- Provides continuing, broad-based education for environmental awareness management. The objective qualitative information generated by such understanding provides a strong foundation for strategic thinking. Enterprises that closely monitor their environment can adopt appropriate business practices to improve their performance and become leaders in the industry.
- Environmental understanding creates a feeling among the public that a business is sensitive and responsive to its environment. It helps in building the image or reputation of the firms.
An understanding of its business environment helps an organization to make realistic plans and ensure their effective implementation. It also helps the business enterprise to identify opportunities and threats. As a result, such an enterprise is likely to achieve its goals smoothly and consistently successfully.
THREE WAYS COMPANIES CAN HOLD FIRST-MOVER ADVANTAGE
Companies can come with products loyalty, and product costs a suitable and
satisfying amount for consumers to move from another product to the other. A
first-mover advantage can be significant. By being the first to the market with a
product with high moving costs, you can develop the company’s brand loyalty—
especially if your customers love your product.
Scarce Property Assets
One of the prominent examples of this is Gold. Countries with a lot of Gold can
currently create wealth just by leveraging their natural resources. If you can control scarce assets, then the first-mover advantage might be super significant for you.
The downside to banking on the control of scarce assets is that there aren’t many of them.
You have to be in the right place at the right time with the right amount of resources to take control of the scarce asset base.
Technological learning curves proprietary and exclusive for your company can make it hard for other businesses to copy you.
Procter & Gamble used technical leadership to become the premier provider of dispersing in the United States market. They invested in a low-priced synthetic fiber made in Europe, which allowed them to bring these diapers profitably at a lower price and with a technological advantage.
WHERE DOES WORK FIRST-MOVER ADVANTAGE?
- The first-mover advantage works best for a company when the advantage is a clear competitive advantage in the industry. This includes industries where learning matters, such as the complex production of items such as airplanes or pharmaceuticals, as this edge increases with the amount of intellectual property protection that a company has. Learning benefits often translate into scale as the complexity requires a significant investment. The scale allows companies to spread fixed costs across multiple units, so the competitor must compete at scale to close the learning gap and enter the market. Profits are realized while allowing other companies to hold on to first movers and critical assets to capture, so learning, size, and access often come in the package for first movers.
- Network effects are a bit more subtle. Many tech companies are the first to launch a particular platform for users to enjoy network effects and increase the value to each user as the overall user base grows. Mobile games become addictive for several reasons. There are addictions, but one of the most popular games is that there is no reason for anyone to play it forever. Network effects apply to many of the online services we use, including dating sites, shopping sites, search engines, etc., as they improve in value because more people use them if these effects combine with higher switching costs – for example, if you need to buy a separate console to play games. Or you have set up groups in social media platforms that you don’t want to lose, then the network effect increases. Being familiar with the processes of a particular brand, like a smartphone’s OS or the layout of a site, also helps lockdown the customer.
Benefits of being a first-mover
Extensive supplier options
When your organization is the first organization in the entire marketplace with a new product, your company will have an extensive list of suppliers interested in working with you. You can work accordingly to ensure a cost-effective model that provides the customers a high-quality product.
Defining industry standards
As you will be the first organization in the market, your product and manufacturing will be established and set up a benchmark for the other businesses entering the marketplace. Rather than relying on the other standards your company will set its own standards and work accordingly.
Developing retailer relationships
There will be an excellent built-up of relationships with a wide range of retailers as your company will be the only company in the entire marketplace with your product. The more popular the product will be, the more stores will want to work with you and provide that particular product which is of your organization.
Increased brand recognition
Customers will quickly learn to associate with your brand as your product will be the only product present in the market. Brand recognition often leads to an increase in the number of sales and long-term relationships with customers.
Establishing economies of scale
Depending on the industry the first few months of the production can be costly as you have found the product which is efficient and will need economical ways to manufacture and break it in the market. Being the first in the marketplace helps you to establish a cost-effective system before any other competitors enter the marketplace
Defining customer loyalty
Some industries or products produce loyal customers because of the initial investment in the product. Being the first to the marketplace increases the necessity and also provides customer loyalty.
DISADVANTAGES OF FIRST-MOVER ADVANTAGE
- It doesn’t have the limits of first-mover advantage, and its shelf life may get shorter and shorter. Two forces that erode first-mover advantage are market growth and technological advances. Market growth refers to consumer tastes and can change rapidly, surprisingly even leading a particular market. A company that manufactures something like a primary paint or tape may not see a rapidly evolving taste. Companies that make consumer technology will see consumer tastes changing rapidly and more competition to fill the new demands. Which touches on technological developments.
- No matter how complex the process or how great the learning benefits, there is always a risk that technology may seem to bridge the gap that occurs overnight. First movers are often committed to what worked in the past regarding their business model and processes. Then a fast follower arrives with no commitment to the old technique and the ability to learn from the first mover’s mistakes and ends up losing the lead in the field.
- In the business world, however, even the most minor profit can make a huge difference. First movers can convert their initial profit into a long-term economic cost. However, they are also at the risk of overestimating those benefits. Development in the market or the technology used to serve it can eliminate the work of developing the product and the market in the first place. Even with these two forces interfering, the first-mover advantage wears out over time if a company becomes unconscious in advancing its technology and reinforcing its price competitiveness. First mover or not.
Need a First Mover Advantage to Be Successful?
As many examples as there are of businesses that have first-mover advantages, and they are very successfully run businesses, there are so many others that are highly successful and knocked off the first movers and worked in the same market field.
The reality is the better and better for a better product, service, or way of marketing will often beat the first-mover advantage. Find a better way to positioning your products in the market, a better way to reach your customers, or have more strong customer service—and you
put yourself in place to win.
If you do this, then you can break nearly any marketplace.
Don’t let being afraid that somebody else has a first-mover advantage keep you from moving
into business. Get what you want, and don’t let anyone hold you back.
Example of First Mover Advantage company in the world