The advantage gained by a company that first introduces a product or service to the market
Business success is often strongly correlated with being the first to market a product or service. This is called the first mover advantage. As with any business strategy, it has its advantages and disadvantages.
Read on to learn more about the definition of first mover advantage, its benefits, disadvantages, a few examples of companies that were first movers and some that weren't – and they may surprise you!
What is the first mover advantage?
The first mover advantage is when a company gains a competitive advantage by launching a product or service first. As the first to market, a company can establish strong brand recognition with a product or service and build customer loyalty before other companies throw their hat in the ring.
Having the first mover advantage in your vertical can make your company a leader in many ways, such as with cost, knowledge sharing, or technology. It also gives early mover companies extra time to polish their product or service and set the right market price.
A first mover advantage does not necessarily refer to a company that moves into a market first. It usually refers to a company that launches a product or service and finds success or achieves significant scale in the market first. For example, Amazon wasn't the first company to sell books online, but it was the first one to find success.
Of course, the first mover must continue to evolve their resources and technologies to stay ahead of the competition. It's very common for competitors to capitalise on the success that the first mover has established, in an attempt to gain market share.
Advantages for first movers
There are some key advantages to being an early mover that creates a robust market position for the company. The benefits include:
Setting industry standards
An advantage of being a first mover is establishing a product or service as an industry standard. It's not just the product or service though. It can also be the manufacturing process or technology that sets industry norms.
This means that, rather than relying on standards set by another company in the industry, the business can reset the bar in a pre-established market and redefine the manufacturing, development, and marketing practices in the vertical.
Brand name recognition and loyalty
If a company is the only business with a certain product or service on the market, customers can quickly learn to associate the offering with the brand. This often results in increased sales and long-term customer relationships.
Usually, when competitors launch a similar product in an attempt to gain market share, the original company may lose a little customer loyalty - but, more often than not, the majority of the customer base stays with the first mover. Customers may not realise the products or services are the same, or they may simply prefer to continue buying the original.
Because of the gravity a brand name has in association with its product or service, it often drives new customer acquisition too, even after other companies have entered the arena.
Premium retailer contracts, supplier agreements, and employees
As the first to market, early movers have the advantage of making strategic decisions around resources, suppliers, and retailers. The more popular a product or service is, the more demand it has. Just think of the amount of people that would want to work for Netflix, sell Kellogg's, or supply eBay.
Economies of scale
For technology and manufacturing brands, the first few months of the production or development line can cost dearly until the business has found the most economical way to build the product or service and bring it to the marketplace.
An advantage of being a first mover is that companies can sculpt a micro-economy and a cost-effective process before competition arises.
Buyer switching costs
A first mover builds a strong business foundation because of buyer switching costs. In a nutshell, this means that as a customer has already bought into the first mover's product, it will cost them more to switch to a competitor. Often, it costs both financially and in resource. For example, if a customer wanted to switch to a competitor product, there would be costs in purchasing the product and in retraining employees.
Research into first mover advantage
Professors Marvin Lieberman and David Montgomery, in their 1988 award-winning paper, First-Mover (Dis)Advantages: Retrospective and Link with Resource-Based View, list three main benefits of being a first mover. They include:
- Technology leadership: First movers make it harder for late entrants to replicate their product or service
- Control of resources: First movers can control strategic and/or scarce resources
- Buyer switching costs: First movers often find that customers are reluctant to switch to a new brand as it's inconvenient
Disadvantages of being a first mover
Being the first to enter the marketplace is not a guaranteed success. There are disadvantages associated with being a first mover, including:
First movers want to convince potential customers to try their product or service. This can require a costly investment. Competition that enters the market later does not need to sink budget into educational costs, as they're pitching to potential buyers that the first mover has already educated.
Being the first to the marketplace may involve an expedited development stage, such as manufacturing, design, or testing. This could result in a product that is less finely tuned than the competition. Focusing on quality during production is a way to mitigate this. A first mover is the first company that markets a product successfully, and rushing is no guarantee of making it.
Other businesses will likely copy and improve a first mover's product or service in a bid to capture a share of the market. It's estimated that it costs 60% to 75% less to replicate an existing product than it costs to create a new product.
The risk to first movers is that not only will their product or service be replicated and improved, but it will likely cost the competition less to produce it.
Examples of companies that were first movers
Here are a few companies that were first movers:
Coca-Cola wasn't the first fizzy drink to enter the marketplace. Other brands, like Dr Pepper, were already in existence. However, when Coca-Cola launched in 1886, it immediately captured the largest market share, making it a first mover.
Fun fact: the Pepsi-Cola Company, founded in 1902, went bankrupt twice and rebranded in the 1950s just to keep up with Coca-Cola. And yet, Coca-Cola's brands have generated over £1 billion in revenue - a milestone Pepsi has never been able to meet.
The 1860s boasted the start of the commercial cereal game. A graham dough breakfast cereal, called granula, was created by James Caleb Jackson in 1863. It was first to market, but did not witness much success. Surgeon John Harvey Kellogg later made a similar version and called it granola.
Shortly afterwards, Kellogg and his brother Will Keith Kellogg discovered how to make flaked cereal, added sugar to it, and mass marketed the product. At that point, they started to leverage the first mover advantage.
I think we'll all agree that Apple changed the mobile phone landscape. And while it wasn't the first brand to create a mobile phone, the unveiling of its first iPhone in 2007 sent ripples across the industry that changed the marketplace forever.
While HTC was the original Android brand in 2008, other brands soon followed. And although many Apple iOS and Google Android systems have loyal customers, Apple is slightly ahead as the preferred supplier.
Netflix disrupted the video rental industry with dramatic force, taking down businesses like Blockbuster. Netflix had the first mover advantage and conceived the video streaming market.
However, today it is under overwhelming pressure from the likes of Amazon, Apple, and Disney that are amplifying their efforts to capture growing consumer demand. This is an example of how the first mover advantage doesn't guarantee long term success and, in this instance, the streaming wars have called the first mover advantage into question.
Examples of companies that were not first movers
There are plenty of large companies that we recognise instantly today that were surprisingly not first movers. Some include:
Interestingly, Google did not have the first mover advantage, despite now owning 92% of the search engine marketshare worldwide plus a plethora of additional products and services. And while its search engine was its first product iteration, there were other search engines already on the market, such as Yahoo and Infoseek.
Coffee shops existed before Starbucks. However, the brand was able to establish a strong brand reputation which has become synonymous with coffee, whether you were at home, at work, or on the move.
The first mover advantage is a highly sought after strategic business decision, but it comes with its risks and rewards. If you've worked at a first mover company, or were employed by a company exploring this strategic move, it can be an impressive selling point to raise on your CV. Speak to the CV experts to find out how to display this information in the best way and capture a prospective employer's attention.