MODULE 6 ASSIGNMENT

What are the advantages and disadvantages of being a first mover in an industry? Give
some examples of first mover and late mover firms. Were they successful?

Answer:

A first mover is a service or product that gains a competitive advantage by being the first
to market with a product or service. Being first typically enables a company to establish strong
brand recognition and customer loyalty before competitors enter the arena. Other advantages
include additional time to perfect its product or service and setting the market price for the new
item.
First movers in an industry are almost always followed by competitors that attempt
to capitalize on the first mover's success and gain market share. Most often, the first mover has
established sufficient market share and a solid enough customer base that it maintains the
majority of the market.

I. Advantages of First Movers

Being the first to develop and market a product comes with many prime advantages that
strengthen a company's position in the marketplace. For example, a first-mover often gains
exclusive agreements with suppliers, sets industry standards, and develops strong relationships
with retailers. Other advantages includes:

§ Brand name recognition is the main first-mover advantage. Not only does it engender
loyalty among existing customers, but it also draws new customers to a company's
product, even after other companies have entered the market. Brand name
recognition also positions companies to diversify offerings and services.
§ Economies of scale, particularly those regarding manufacturing or technology-based
products, is a massive advantage for first movers. The first mover in an industry has a
 longer learning curve, which frequently enables it to establish a more cost-efficient
means of producing or delivering a product before it competes with other businesses.
§ Switching costs let a first-mover build a strong business foundation. Once a customer has
purchased the first mover's product, switching to a rival product may be cost-prohibitive.
For example, a company using the Windows operating system likely would not change to
another operating system, because of the costs associated with retraining employees,
among other costs.

II. Disadvantages of First Movers

Being the first business in an industry may not always guarantee an advantage.

§ The first mover may invest heavily in persuading consumers to try a new product. Later
entrants would benefit from these informed buyers and would not need to spend as much
on educating consumers.
§ Later entrants can avoid mistakes made by the first mover.
§ If the first mover is unable to capture consumers with their products, later entrants can
take advantage of this.
§ Later entrants can reverse-engineer new products and make them better or cheaper.
§ Later entrants can identify areas of improvement left by the first mover and take
advantage of them.

Examples of First Movers

§ Businesses with a first-mover advantage include innovators, Amazon. Amazon created

the first online bookstore, which was immensely successful. By the time other retailers
established an online bookstore presence, Amazon had achieved significant brand
recognition and parlayed its first-mover advantage into marketing a range of additional,
unrelated products. According to Forbes's "The World's Most Innovative Companies"
2019 ranking, Amazon ranks second. It has annual revenues of $280 billion and, through
the end of 2019, had a 20% annual sales growth rate.
 § eBay built the first meaningful online auction website in 1995 and continues to be a
popular shopping site worldwide. It ranked 43rd on the Forbes list of innovative
companies. The company generates $287 billion in annual revenues, with a 2.8% annual
sales growth rate.

Examples of Successful Companies That Were Not First Movers

Listed below are three companies that were not first movers in their respective markets,
but have now grown to become some of the biggest companies in the world:

§ Google - Before Google, there were search engines such as Yahoo and Infoseek.
However, Google was able to customize its search engine to perform more effectively
and efficiently. They now control over 65% of search activity.
§ Southwest Airlines - Southwest Airlines entered the airline industry as a late entrant but
was able to expand and become the second-largest airline in the world in terms of the
total number of passengers. The company focused on an area that other airlines were not
looking at – short-haul flights.
§ Starbucks - There were a lot of places to buy coffee before the establishment of
Starbucks. However, Starbucks was able to establish a strong brand equity by placing an
emphasis on making Starbucks the go-to place when you’re not home or at the office.