Fahri Karakaya & Michael J.

Stahl

Barriers to Entry and Market

Entry Decisions in Consumer and
Industrial Goods Markets
The authors test six market entry barriers in consumer and industrial markets: cost advantages of in-
cumbents, product differentiation of incumbents, capital requirements, customer switching costs, access
to distribution channels, and government policy. They model market entry decisions of 137 executives
in 49 major U.S. corporations with a decision-making instrument consisting of 32 market entry oppor-
tunities. Each respondent's decisions are modeled by regression analysis. The differences in the impor-
tance of the six market entry barriers for early and late entry in consumer and industrial goods markets
are investigated. The results indicate that marketing executives consider all six barriers in making market
entry decisions. The cost advantages of incumbents are considered to be the most important of the
market entry barriers. Major differences also are discovered among the other five barriers. Furthermore,
the importance of the barriers differs between consumer and industrial goods markets.

M ANY firms enter new or familiar markets in an

attempt to grow by introducing new or modified
products, whereas some enter with products that are
identical to the ones already in the market. In either
case the firms face market entry barriers and great fi-
nancial risk. Shepherd (1979) states that barriers to
entry decrease the likelihood, scope, or speed with
which potential competitors can come into the mar-
kets. Similarly, Porter (1980a) stresses that barriers to
entry give incumbents inherent advantages over po-
tential entrants.
Though market entry barriers are crucial environ-
mental factors that influence the market share and profit
of firms already in the market, very little empirical
research has examined the barriers. We study market
entry barriers in consumer and industrial goods mar-
kets to address the following major questions:
• Which entry barrier(s) is most important in deterring
businesses from entering markets?
• Does the importance of market entry barriers in the mar-
ket entry decision differ between consumer goods mar-
kets and industrial goods markets?
Fahri Karakaya is Associate Professor of Marketing, Southeastern Mas-
sachusetts University. Michael J. Stahl is Professor of Management,
Clemson University.
• Is there a difference in the importance of barriers be-
tween early and late market entry decisions in consumer
or industrial goods markets?
Literature Review
The study of barriers to entry was pioneered by Bain
(1956). According to Bain, economies of scale, prod-
uct differentiation, and absolute cost advantages serve
as barriers to market entry. Nineteen different market
entry barriers identified in a literature review are sum-
marized in Table 1.
Extensive economic theory on barriers to entry
postulates how various elements of industry structure
can impose disadvantages on entrants relative to in-
cumbents. The presence of barriers to entry results in
fewer entries and therefore enables incumbents to have
above-average profitability (Yip 1982a). Mann (1966)
and Shepherd (1979) support this view that barriers to
entry influence profit rates. However, barriers to entry
vary by the characteristics of the market or market
structure. According to Shepherd (1979), entry bar-
riers range from high to low in pure monopoly, dom-
inant firm, and tight oligopoly conditions, whereas free
entry exists in monopolistic and pure competition
markets.
Despite the presence of barriers to market entry,

Journal of Marketing
80/ Journal of Marketing, April 1989 Vol. 53 (April 1989), 80-91.
 TABLE 1
Market Entry Barriers Literature Review
Barriers Source
Cost advantage of Bain 1956; Day 1984; Harrigan
incumbents 1981; Henderson 1984; Lieberman
1987; Porter 1980b; Scherer 1970,
1980; Schmalensee 1981;
Weizsacker 1980; Yip 1982a
Product differentiation of Bain 1956, 1962; Bass et al. 1978;
incumbents Hofer and Schendel 1978; Porter
1980b; Schmalensee 1982
Capital requirements Bain 1956; Eaton and Lipsey 1980;
Harrigan 1981; Porter 1980b
Customer switching costs McFarlan 1984; Porter 1980b
Access to distribution Porter 1980b, 1985
channels
Government policy Beatty et al. 1985; Dixit and Kyle
1985; Grabowski and Vernon 1986;
Moore 1978; Porter 1980b; Pustay
1985
Advertising Brozen 1971; Comanor and Wilson
1967; Demsetz 1982; Harrigan 1981;
Netter 1983; Reed 1975; Reekie and
Bhoyrub 1981; Spence 1980
Number of competitors Harrigan 1981
Research and development Harrigan 1981; Schmalensee 1983
Price Needham 1976; Smiley and Ravid
1983
Technology and Arrow 1962; Ghadar 1982; Porter
technological change 1985; Reinganum 1983
Market concentration King and Thompson 1982
Seller concentration Bain 1956, 1968; Crawford 1975;
Mann 1966
Barriers to Entry and Market Entry Decisions /81
Implications
One of the most important entry barriers,
and usually results from economies of
scale and learning curve effects.
Established firms have brand
identification and customer loyalties due
to advertising, being first in a market,
customer service, or product differences.
Need to invest large financial resources
in order to compete or enter a market
constitutes barrier to entry, and is higher
in capital-intensive industries.
Switching costs prevent the buyer from
changing suppliers, and technological
changes often raise or lower these costs.
First or early market entrants use
intensive distribution strategies to limit
the access to distributors for the potential
market entrants.
Government limits the number of firms
in a market by requiring licenses,
permits, etc.
Heavy advertising by firms already in the
market increases the cost of entry for
potential entrants and affects brand
loyalty as well as the extent of
economies of scale by causing cost per
dollar revenues to decline.
Market entry is expected to be more
likley during periods of increasing
incorporations and less likely after a lag,
during periods when high numbers of
business failures occur.
This barrier is usually short-lived.
Incumbent firms may prevent the entry
of new firms by investing effectively in
R&D, which increases technological scale
economies and forces the ongoing
industry context to evolve in a way that
would make subsequent attempts to
enter even more ineffectual.
Price warfare can be a significant
deterrent to entry, particularly in
industries where firms are more likely to
lower their prices to fill underutilized
plants.
Usually present in high technology
industries and can actually raise or lower
economies of scale, which is one of the
major sources of cost advantages.
The influence and impact of
concentration on entry appear to be
minimal.
Entry is unlikely to be as easy in highly
concentrated as in less concentrated

Barriers
Divisionalization
Brand name or trademark
Sunk costs
Selling expenses
Incumbent's expected
reaction to market entry
Possession of strategic raw
materials
TABLE 1 (continued)
Market Entry Barriers Literature Review
Source Implications
markets. The higher the degree of
concentration, the greater the effect of
barriers on profit; the lower the degree
of concentration, the lower the effect of
barriers on profit.
Schwartz and Thompson 1986 Only expected in exceptionally profitable
oligopolistic industries. Incumbent firms
create new independent divisions more
cheaply than potential entrants who must
incur additional overhead costs for entry.
Krouse 1984 New entrants to an industry are denied
the benefits of brand name created by
others as a result of the exclusive rights
to use given with a trademark. Usually a
weak barrier.
Baumol and Willig 1981 Contribute to entry barriers that can also
give rise to monopoly profit, resource
misallocation, and inefficiencies.
Williamson 1963 Shifts in demand functions can result
from selling efforts making market entry
endogenous
Needham 1976; Yip 1982b May deter market entry only if the
incumbent firms are able to influence
potential entrants' expectation about the
post-entry reaction of the incumbents.
Scherer 1970 Access to strategic raw materials
contributes to firms' absolute cost
advantages.

firms still try to enter markets and some even become
more successful than the incumbent firms. Some firms
enter markets early and others enter late. According
to Jain (1981), the late entrants or laggards come into
the markets in three ways: (1) an imitator enters the
market as a "me too" competitor, (2) an initiator
questions the status quo and, after doing some inno-
vative thinking, enters the market with unconven-
tional strategies, and (3) some companies enter stag-
nant markets with modified products. Porter (1980b)
states that firms use three major entry strategies: (1)
entry through internal development, which involves
the creation of a new business entity in an industry,
(2) entry through acquisition, and (3) sequenced en-
try, which entails initial entry into one group and sub-
sequent mobility from group to group. However, the
literature review provides no empirical evidence about
how entry barriers influence firms to make market en-
try decisions.
In markets where barriers to entry are strong, many
firms attempt to enter by way of acquisition. How-
ever, the direct entrants outnumber the acquisition en-
trants by two to one. The direct entrants also outper-
form the acquisition entrants on market share gains
(Yip 1982a,c).
Porter (1980b) has written extensively on barriers
to entry and proposes six major sources of barriers.
In general, they include the most important entry bar-
riers discussed in previous literature. Therefore, only
these six barriers are tested in our research (Porter
1980b, p. 7).
1. Cost advantages of incumbents
2. Product differentiation of incumbents
3. Capital requirements
4. Customer switching costs
5. Access to distribution channels
6. Government policy
We make a minor modification to Porter's original
proposal. Porter discusses the economies of scale and
cost advantages independent of scale as separate entry
barriers. These two barriers are closely related as they
both pertain to the incumbents' having cost advan-
tages. Day (1984) lists the first five of the preceding
market entry barriers, but treats the cost advantages
of incumbents as a single barrier consisting of scale
economies, experience, or unique factors. Therefore,
"cost advantages of incumbents" is treated as one en-
try barrier in our research.

82/ Journal of Marketing, April 1989

 Hypotheses
On the basis of the literature review and because no
studies were found that empirically examined the rel-
ative importance of the six market entry barriers, we
developed the following hypotheses (presented in null
form).
HI: Cost advantages, product differentiation, capital
requirements, customer switching costs, access
to distribution channels, and government policy
barriers are not associated with market entry de-
cisions.
Hz: There is no difference in importance among the
market entry barriers for market entry decisions.
H3 : There are no differences in the market entry bar-
riers associated with early entry decisions be-
tween consumer and industrial goods markets.
H4 : There are no differences in the market entry bar-
riers associated with late entry decisions between
consumer and industrial goods markets.
H5 : Market entry barriers are not important in influ-
encing the market entrants to make early or late
entry decisions in consumer goods markets.
H6 : Market entry barriers are not important in influ-
encing the market entrants to make early or late
entry decisions. in industrial goods markets.
Method
Sixty corporations were mailed a decision-making ex-
ercise designed to model executives' decisions related
to market entry barriers such as cost advantages, prod-
uct differentiation, capital requirements, customer
switching costs, access to distribution channels, and
government policy (Porter 1980b). Forty-nine of the
60 companies in the sampling frame responded, pro-
viding market entry decisions for 137 executives.
The instrument was pretested with 81 undergrad-
uate marketing students, then slightly modified. A
second pretest with 11 executives and six graduate
students produced excellent results.
A package containing the instrument, a personal-
ized letter, and a postage-paid return envelope was
mailed to executives who were in positions to make
market entry decisions or contribute to the decisions
(e.g., vice presidents of marketing, marketing man-
agers, or directors). A summary of results and deci-
sion-making profiles were promised to interested re-
spondents. A reminder postcard was sent 10 days after
mailout. Because almost all market entry decisions are
made by more than one executive, firms having more
than 10 members listed in the American Marketing
Association Directory were selected as the sample.
Thus, the firms selected were Fortune 500 companies
with sales ranging from a maximum of $102.8 billion
to a minimum of $1.045 billion, with average sales
being $12.8 billion.
A decision-making exercise was used for several
reasons. First, the importance placed on six market
entry barriers could be measured objectively. Second,
social desirability problems could be avoided (Arnold
and Feldman 1982; Fahey and Christensen 1987; Stahl
1986; Stahl and Harrell 1982). Third, the problem of
poor cognitive insight documented in many other studies
in which the respondent was directly asked to rank or
rate multiple criteria could be avoided (Slovic and
Lichtenstein 1971; Slovic, Fischhoff, and Lichtenstein
1977; Stahl and Zimmerer 1984). Fourth, the deci-
sion-making exercise enables researchers to follow a
planned experimental design and thus control the
amount of information the subjects use in making de-
cisions (Stahl and Zimmerer 1984). Fifth, Brown (1972)
found that the policy models for individuals' decisions
derived under natural and experimental conditions did
not differ significantly. Therefore, simulated deci-
sion-making exercises afford a valid assessment of an
individual's policy model.
The exercise was formulated around a one-half
replicate of a full factorial design with six criteria each
at two levels (1/2 2X2X2X2X2X2). The exercise
consisted of 32 market entry opportunities with four
entry decisions per opportunity or a total of 128 de-
cisions per respondent. Figure 1 is an example of mar-
ket entry opportunity and market entry decisions.
For analysis of the relative importance of market
entry barriers, the relative weights were computed from
the individual regression results by squaring the stan-
dardized regression (beta) coefficients and then divid-
ing them by the R2 (Stahl and Zimmerer 1984):
B2
= 1, ... n,
I
RWj=-z' i
R
where:
Rw, =relative weight for criterion i,
B, = standardized beta coefficient for criterion i,
and
R 2 = square of the multiple correlation coeffi-
cient.
Ward (1962) demonstrated that this transformation
is meaningful only in the case of an orthogonal de-
sign, which is a primary reason for the choice of a
factorial design in our research. The procedure results
in relative weights that sum to 1.0. Multiplying each
relative weight by 100 so they sum to 100 enables the
researcher to compare the relative importance of the
decision cues used in decision-making exercises. If a
nonorthogonal design were used, such comparisons
would not be possible.
Operational definitions of market entry barriers
derived from Porter (1980b, p. 7-11) and of other
terms used in our study are listed in Table 2.
Barriers to Entry and Market Entry Decisions / 83
 FIGURE 1
A Sample of the Decision-Making Exercise

MARKET CONDITION # I:

• Cost Advantages of Incumbents High

• Product Differentiation of Incumbents Low
• Capital Requirements to enter market... Low
• Customer Switching Costs Low
• Access to Distribution Channels Low
• Government Policy Low

With the level of these 6 market entry barriers in mind, indicate the chance you would
recommend market entry (please circle percentages).....

.. ..Decision A: If the above represents an early market entry opportunity into Consumer
Goods Market.
No Chance 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Definite

....Decision B: If the above represents a late market entry opportunity into Consumer
Goods Market.
No Chance 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Definite

...Decision C: If the above represents an early market entry opportunity into Industrial
Goods Market.
No Chance 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Definite

...Decision D: If the above represents a late market entry opportunity into Industrial
Goods Market.
No Chance 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Definite

Results markets as dependent variables. Significant standard-

The first step in analyzing the data was calculation of
R 2 for four decisions, early and late entry into con-
sumer and industrial goods markets per respondent.
R 2 was used as a measure of internal consistency and
reliability (Stahl and Harrell 1981, 1982; Stahl and
Zimmerer 1984). An R 2 less than .38 corresponds to
a regression model not significantly different from zero.
Therefore, any individual for whom anyone of the
four decision R 2 values was below .38 was excluded
from the data analysis. Only two individuals had R 2
values below .38 and were deleted. The average R 2
for the four decisions was .73 and the range was .41
to .99. These findings indicate that the respondents
were very internally consistent in their decisions.
The statistical significance of the interaction terms
also was examined. A model consisting of the six main
effects and the 15 possible two-way interactions, with
the early entry decision in consumer goods markets as
the dependent variable, was analyzed at the individual
and group levels. The process was repeated with de-
cisions for late entry in consumer goods markets and
decisions for early and late entry in industrial goods
ized beta coefficients at the ex = .01 level were noted.
The two-way interaction terms were statistically sig-
nificant for only a very small percentage of the re-
spondents (approximately 2 to 3% depending on the
market entry decision). Therefore, the rest of the anal-
ysis is based on the main effects only. The percentage
breakdown of respondents who considered barriers
important is given in Table 3.
H1
HI was tested by performing t-tests on the mean rel-
ative weights of each market entry barrier individ-
ually. As explained before, relative weights enable re-
searchers to compare the relative importance of decision
cues (i.e., relative importance of market entry bar-
riers).
Table 4 reports the results of the t-tests for four
decisions. The null hypothesis is rejected at the ex =
.01 level, supporting Parler's (l980b) propositions that
cost advantages of incumbents, product differentiation
of incumbents, capital requirements to enter mar-
ket(s), customer switching costs, access to distribu-

84/ Journal of Marketing, April 1989

 TABLE 2
Operational Definitions
Concept Definition
Cost advantages of The advantages include the decline in unit cost of a product as the absolute
incumbents (CAl) volume of production per period increases as well as the reduction in unit cost
resulting from product knowhow, design characteristics, favorable access to raw
materials, favorable locations, government subsidies, and learning or experience
curve.
Product differentiation of Established firms have brand identification and customer loyalties stemming from
incumbents (PDI) past advertising, customer service, product differences, or simply being first into
the market.
Capital requirements (CR) The need to invest large financial resources to enter a market and compete in that
market.
Customer switching costs One-time costs to the buyer due to switching from one supplier to another (i.e.,
(CSC) employee retraining costs, cost of new ancillary equipment, need for new
technical help, product redesign, etc.).

Access to distribution
channels (ADC)
Government policy (GP)
The extent to which logical distribution channels for a product are already served
by the established firms in the market.
The extent to which government limits or forecloses entry into industries with
such controls as licensing requirements and limits access to raw materials (i.e.,
regulated industries and Environmental Protection Agency laws).

Early market entry
Late market entry
Consumer goods markets
Industrial goods markets
There is no clear definition of early market entry in the literature. However, Jain
(1981) implies that early market entry takes place after the first firm enters the
market with a new product (i.e., early market entry may take place just after the
first entry).
Late market entry refers to entering the market near the end of the growth phase
of the market or in the maturity phase of the market (Jain 1981).
Markets in which firms produce goods and services for the public.
Markets in which firms produce products for use in producing other products or
services.

tion channels, and government policy are perceived performing multivariate analysis of variance (MAN-
as barriers to market entry. This finding holds for all OVA) on relative weights associated with six barriers
four decisions. for four decisions. The results of MANOVA (Wilks'
lambda = .870, F = 5.746, P < .01) indicate that
Hz there are differences. Second, four one-way analysis
Whether there are differences in the importance of of variance (ANOVA) and Duncan's multiple range
barriers in market entry decisions was tested first by tests were conducted.
The ANOV As comparing the relative weights of
TABLE 3 market entry barriers for four decisions clearly indi-
Percentage of Respondents Considering Market cate that the barriers differ in importance. For early
Entry Barriers lmportant" entry into consumer goods markets, the importance
Consumer Industrial attached to barriers differs significantly (FS•8 16 = 10.22,
Markets Markets P < .01). Table 5 reports which barriers are actually
Decision Early Late Early Late different at the p < .05 level. According to the Dun-
Cuesb Entry Entry Entry Entry can's multiple range tests, cost advantages, capital re-
CAl 91 83 89 83 quirements, and product differentiation barriers differ
PDI 77 70 75 62 statistically from the other three barriers.
CR 80 78 84 76 The ANOV A results for late entry into consumer
CSC 73 70 75 69
ADC 77 56 60 55 goods markets also show that the importance of bar-
GP 59 45 60 55 riers differs significantly (F S •8 16 = 11.61, P < .01).
a Ot = .05. Duncan's multiple range tests (Table 5) indicate that
"See Table 2. the cost advantages, product differentiation, and cap-

Barriers to Entry and Market Entry Decisions / 85

 TABLE 4 TABLE 6
Means Test of Relative Weights for Market Duncan's Multiple Range Test for Market Entry
Entry Barriers" Decision in Industrial Goods Markets (n = 136)
Consumer Markets Industrial Markets Mean
Relative Decision Relative Weights B
Early Late Early Late
Decision Entry Entry Entry Entry Weights Cuesb CAl PDI CR CSC ADC GP
Cuesb (n = 137) (n = 137) (n = 136) (n = 136) Early Entry
CAl .208 .217 .236 .238 .237 CAl
(16.1-2) (15.28) (16.39) (15.25) .1S5 PDI S
PDI .195 .193 .165 .161 .193 CR S NS
(13.63) (13.59) (12.50) (11.76) .149 CSC S NS S
CR .204 .203 .193 .193 .124 ADC S NS S NS
(14.37) (13.75) (14.40) (14.81) .128 GP S S S NS NS
CSC .130 .148 .149 .170 Late Entry
(13.57) (12.72) (14.00) (13.40) .238 CAl
ADC .140 .128 .124 .121 .161 PDI S
(11.48) (10.46) (10.73) (11.05) .193 CR S NS
GP . 1 1 8 . 1 07 .128 .113 .170 CSC S NS NS
(9.22) (9.02) (9.70) (8.57) .121 ADC S S S S
aA11 market entry barriers are statistically different from zero (p .113 GP S S S S NS
< .01) in t-tests. as means the relative weights are significantly different and
bSee Table 2. NS means the relative weights are not significantly different
at the a = .05 level in Duncan's multiple range test.
'bSee Table 2.
ital requirements barriers differ from the other three
barriers, as in the case of the early entry decision. In
tion barrier differs significantly from the cost advantages
addition, the customer switching costs barrier differs
and government policy barriers and it appears to be
from the access to distribution channels barrier.
the third most important entry barrier. The capital re-
For early entry into industrial goods markets, the
quirements barrier is significantly different from the
ANOVA results are statistically significant (F S•8 1S =
cost advantages, customer switching costs, access to
11. 17, P < .01). Duncan's multiple range test (Table
distribution channels, and government policy barriers
6) shows that the cost advantages market entry barrier
and it is the second most important barrier to early
differs significantly from all other barriers (mean rel-
entry in industrial goods markets.
ative weight = .237) and it is clearly the most im-
The ANOVA results for the late entry decision in
portant market entry barrier. The product differentia-
industrial goods markets also indicate that the market
entry barriers differ significantly in importance (Fs ,8 Is
TABLES
= 12.21, P < .01). Duncan's multiple range test (Ta-
Duncan's Multiple Range Test for Market Entry ble 6) shows that the cost advantages barrier differs
Decisions in Consumer Goods Markets (n 137) = significantly from all other entry barriers and it is per-
ceived as the most important, as in the early market
Mean
Relative Decision Relative Weights8 entry decision in industrial goods markets. However,
Weights Cuesb CAl PDI CR CSC ADC GP the product differentiation and capital requirements
Early Entry barriers differ only from the cost advantages of in-
.208 CAl cumbents, access to distribution channels, and gov-
.196 PDI NS ernment policy barriers. Also, the customer switching
.204 CR NS NS costs barrier differs significantly from the access to
.130 CSC S S S distribution channels and government policy barriers,
.141 ADC S S S NS
.118 GP S S S NS NS In order of importance, the cost advantages barrier
is followed by capital requirements, customer switch-
Late Entry
.217 CAl
ing costs, product differentiation, access to distribu-
.193 PDI NS tion channels, and government policy. The relative
.203 CR NS NS weights show that this barrier is perceived as more
.148 CSC S S S important for entry in industrial goods markets than
.128 ADC S S S S in consumer goods markets .
.107 GP S S S NS NS
as means the relative weights are significantly different and H3
NS means the relative weights are not significantly different
at the a = .05 level in Duncan's multiple range test. The hypothesized differences in market entry barriers
bSee Table 2. associated with early market entry decisions in con-

86/ Journal of Marketing, April 1989

sumer and industrial goods markets first were tested
by using MANOVA. The results are significant (Wilks'
lambda = .893, F = 9.450, P < .01). To determine
which barriers differ, six paired t-tests were per-
formed. The results are reported in Table 7. Five of
the six barriers compared differ for consumer and in-
dustrial goods markets. The cost advantages and cus-
tomer switching costs barriers are perceived by re-
spondents as more important when entering industrial
goods markets. These findings are consistent with
Webster's (1979) and Porter's (1980b) propositions.
The difference for the capital requirements and
government policy barriers is statistically significant
at p < .01, but this difference is not as high as the
differences for other barriers. Product differentiation
is perceived as a significantly more important barrier
for consumer goods markets, possibly because most
industrial products are not promoted as heavily as
consumer products and are marketed mainly through
personal selling. Capital requirements is the only bar-
rier for which no statistically significant difference is
found.
H4
The differences in barriers associated with the late en-
try decision between consumer and industrial goods
markets also were first tested by MANOVA. As
MANOVA showed statistically significant differences
among barriers (Wilks' lambda = .900, F = 8.756,
p < .01), six paired t-tests were performed to examine
which specific barriers differed. The t-test results are
reported in Table 7.
For late entry, only the product differentiation and
customer switching costs barriers differ at p < .01
between consumer and industrial goods markets. As
in the case of H 3 , product differentiation is more im-
portant for late entry in consumer goods markets.
However, customer switching costs are clearly more
important for late entry in industrial goods markets.
Common sense dictates that customer switching costs
are much higher in industrial goods markets than in
consumer goods markets. Therefore, market entry de-
cision makers place more importance on customer
switching costs when considering entry in industrial
goods markets.
Hs
The hypothesized differences in the influence of bar-
riers between early and late entry decisions in con-
sumer goods markets were examined first by MAN-
OVA. Again, the MANOVA results are significant
(Wilks' lambda = .921, F = 6.810, p < .01). Table
8 reports the six paired t-test results. The customer
switching costs barrier, which appears to be more im-
portant in industrial goods markets, is the only barrier
for which a difference is found. It is perceived to be
more important for late market entry decisions.
Hs
MANOVA shows significant differences in the im-
portance of market entry barriers between early and

TABLE 7 TABLE 8
Comparison of Market Entry Barrier Relative Comparison of Market Entry Barrier Relative
Weights for Consumer Versus Industrial Goods Weights for Early and Late Entry
Markets (n 136) = Average Average
Average Average Relative Relative
Relative Relative Weights, Weights,
Weights, Weights, Decision Early Late
Decision Consumer Industrial Cues8 Entry Entry t-value
Cues8 Markets Markets t-value Consumer Markets
Early Entry (n =137)
CAl .208 .237 -2.69* CAl .208 .217 -.80
PDI .196 .165 2.60* PDI .196 .193 .26
CR .205 .193 1.74 CR .204 .203 .06
CSC .130 .149 -3.25* CSC .130 .148 -2.49*
ADC .141 .124 2.59* ADC .141 .128 1.57
GP .117 .128 -1.93** GP .118 .107 1.33
Late Entry Industrial Markets
CAl .217 .238 -1.80 (n =136)
PDI .194 .161 2.85* CAl .237 .238 -.16
CR .201 .193 .87 PDI .165 .161 .48
CSC .149 .170 -2.58* CR .193 .193 -.02
ADC .128 .121 .94 CSC .149 .170 -2.54*
GP .107 .113 -.94 ADC .124 .121 .40
GP .128 .113 -1.81
"See Table 2.
*p < .01, two-tailed, paired sample t-test. ·See Table 2.
**p < .05, two-tailed, paired sample t-test. *p < .01, two-tailed, paired sample t-test.

Barriers to Entry and Market Entry Decisions / 87

late entry decisions in industrial goods markets (Wilks'
lambda = .917, F = 7.197, P < .01). Six paired t-
tests (Table 8) show a significant difference for only
one barrier at p < .05. The customer switching costs
barrier is perceived as more important for late market
entry decisions.
Conclusions and Discussion
Identification of Market Entry Barriers
Our findings support Porter's (1980b) six proposed
barriers to market entry: cost advantages of incum-
bents, product differentiation of incumbents, capital
requirements, customer switching costs, access to dis-
tribution channels, and government policy. Though
the barriers differ in degree of importance, all six bar-
riers were perceived as important factors to consider
in making market entry decisions in industrial goods
markets. These six barriers influence executive deci-
sion makers in the market entry decision.
Importance of Market Entry Barriers
Some market entry barriers are clearly more important
than others, as shown by the percentage breakdown
of respondents who consider the barriers important and
by the differences in relative weights associated with
the barriers. The cost advantages of incumbents bar-
rier is perceived as the most critical for all market
entry decisions in our study. This finding is consistent
with the business-level strategy of cost leadership
(Porter 1980b).
The capital requirements barrier follows the cost
advantages barrier as the second most important. Cap-
ital investment, which is related closely to the capital
requirements barrier, was studied as one of the stra-
tegic determinants of firm profitability by Schoeffler,
Buzzell, and Heany (1974), as well as Schendel and
Patton (1978). Our findings on the importance of cap-
ital requirements support the findings in previous
studies.
The product differentiation of incumbents barrier
is perceived as the third most important. Product dif-
ferentiation is the second business-level strategy pro-
posed by Porter (1980b). Firms try to differentiate their
products to deter other firms from entering markets
and to increase market share. Our findings support the
importance of product differentiation strategy.
The remaining three barriers (customer switching
costs, access to distribution channels, and government
policy barriers) differ in importance depending on the
market entry decision model. For early entry into con-
sumer goods markets, the access to distribution chan-
nels barrier is considered the fourth most important,
followed by the customer switching costs and gov-
ernment policy barriers. For late entry into consumer
88/ Journal of Marketing, April 1989
goods markets, the customer switching costs barrier
is the fourth most important, followed by the access
to distribution channels and government policy bar-
riers.
The customer switching costs barrier appears to be
the fourth most important for early and late entry into
industrial goods markets. For early entry, this barrier
is followed by the government policy and access to
distribution channels barriers. However, for late en-
try, it is followed by the access to distribution chan-
nels and government policy barriers.
Differences in Barriers to Entry Between
Consumer and Industrial Goods Markets
Our findings provide strong support for the differ-
ences in barriers to entry between consumer and in-
dustrial goods markets. Five of the six barriers tested
are different for early entry decisions; the only barrier
not considered different is capital requirements. The
cost advantages, customer switching costs, and gov-
ernment policy barriers are perceived to be more crit-
ical in early entry for industrial goods markets than
for consumer goods markets. However, the product
differentiation and access to distribution channels bar-
riers are more influential in early entry for consumer
goods markets than for industrial goods markets.
Barriers to late entry are somewhat different in
consumer and industrial goods markets. Product dif-
ferentiation is perceived to be more important for the
early entry decision in consumer goods markets.
However, the customer switching costs barrier is
thought to be more important for late entry in indus-
trial goods markets. This finding is logical because
most consumer products involve very little switching
cost to buyers.
Differences in Barriers for Early and Late
Entry in Consumer or Industrial Goods
Markets
Only one barrier is different for early and late market
entry in consumer or industrial goods markets. The
customer switching costs barrier is perceived as more
important for late entry than early entry in both con-
sumer goods and industrial goods markets. However,
the difference is much greater for entry in industrial
goods markets. The importance of customer switching
costs in late market entry supports Porter's (1985)
suggestion that early market entrants have advantages
in customer switching costs.
Managerial Implications
Market entry barriers are considered to be crucial fac-
tors in the market entry decision. From a managerial
point of view, the importance of barriers is twofold:
(1) for the incumbents, building or keeping the bar-
riers high will make it difficult for new firms to enter
markets and (2) for the new entrants, the presence of
high or low barriers provides directions in market se-
lection. To succeed in holding onto a market by keep-
ing the barriers high, an incumbent must first identify
the relative importance of the barriers.
The incumbents are usually the pioneering firms
in the market. When entering markets, pioneering firms
face only a few market entry barriers (i.e., govern-
ment policy and capital requirements) and have ad-
vantages over the late entrants (Abel and Hammond
1979; Bond and Lean 1977; Dalrymple and Parsons
1980; Day 1981; Porter 1985; Schmalensee 1982;
Smiley and Ravid 1983; Yelle 1979). One of the most
important benefits of being the first market entrant or
a market pioneer is the cost advantage (Porter 1985;
Robinson and Fornell 1985; Schmalensee 1982). As
indicated in the literature review, cost advantages often
result from economies of scale and learning curve ef-
fects. When learning is proprietary, entry barriers are
exceedingly high but they erode quickly as diffusion
of learning increases, making late entry feasible
(Lieberman 1987). In addition, market pioneers ac-
quire higher market shares (Day 1981; Flaherty 1984;
Robinson and Fornell 1985; Urban et al. 1986) and
higher return on assets as a result of having a stronger
relative marketing mix, relative direct cost savings,
and a long-term consumer information advantage
(Robinson and Fornell 1985). Though previous re-
search findings show that pioneering firms have ad-
vantages over the late market entrants, being the first
or an early entrant in the market does not guarantee
long-term high profit or market share (see Business
Week 1978).
Potential new entrants attempt to overcome the
barriers by being competitive (i.e., achieving the same
cost advantages as the incumbents). They must iden-
tify the relative importance of the barriers before mak-
ing entry decisions. The magnitude of barriers often
determines whether early or late entry is elected. Levitt
(1965) favors a late market entry strategy if firms can
employ the so-called "used apple" policy-instead of
bearing the burdens of pioneering markets, let others
enter the market first. If the market turns out to be
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