Ch 5: timing of entry (final exam)

Question 1

What is a first mover?

Answer 1

The first entrants to sell in a new product or service category

Question 2

What are early followers?

Answer 2

Entrants that are early to market, but not first

Question 3

What are late entrants?

Answer 3

Entrants that do not enter the market until the time the product begins to penetrate the mass market or later.

Question 4

What are the first-mover advantages?

Answer 4

1. Brand loyalty and technological leadership
2. Preemption of scarce assets
3. Exploitation/creation of buyer switching costs
4. Reaping increasing returns advantages

Question 5

What are monopoly rents?

Answer 5

The additional returns a firm can make from being a monopolist, such as the ability to set high prices, or the ability to lower costs through greater bargaining power over suppliers.

Question 6

What does the first-mover advantage Brand loyalty and technological leadership imply?

Answer 6

The first introducer may earn a long-lasting reputation as a leader in that technology domain
→ sustain company image, brand loyalty, and market share, even when competitors introduce comparable products.

Can influence customer requirements of form, features, pricing and other characteristics. If difficult for competitors to imitate (patent protected, or unique capabilities), being the technology leader can yield sustained monopoly rents.

Question 7

What does the first-mover advantage Preemption of scarce resources imply?

Answer 7

Firms that enter the market early can preemptively capture scarce resources such as key locations, government permits, patents, access to distribution channels, and relationships with suppliers.

Question 8

What does the first-mover advantage Exploiting/creating buyer switching costs imply?

Answer 8

Once buyers have adopted a good, they often face costs to switch to another good.

• Initial cost of the good itself
• costs for complements
• time invested in becoming familiar with the operations of a complex product.

If buyers face switching costs, the firm that captures customers early may be able to keep those customers even if technologies with superior value propositions are introduced later.

Question 9

What does the first-mover advantage Reaping increasing returns advantages imply?

Answer 9

If pressures encourage adoption of dominant design, timing of a firm’s investment in new technology development may be particularly critical to likelihood of success.

Increasing returns to adoption; Early adopted technology may rise in market power through self-reinforcing positive feedback mechanisms (network effects), leading to it becoming the dominant design.

Question 10

What is incumbent inertia?

Answer 10

The tendency for incumbents to be slow to respond to changes in the industry environment due to their large size, established routines, or prior strategic commitments to existing suppliers and customers.

Question 11

What are the first-mover disadvantages?

Answer 11

1. Research and development expenses.
2. Undeveloped supply and distribution channels
3. Immature enabling technologies and complements
4. Uncertainty of customer requirements

Question 12

What does the first-mover disadvantage Research and development expenses imply?

Answer 12

First to develop/introduce = majority of R&D expenses the technology entails.

• May need to explore “bad” paths before successfully developing the technology.
• Develop necessary production processes and complementary goods that are not available on the market.

Later entrants can ascertain how already introduced product was created, can observe market responses to features and decide how to focus their development efforts → save development expenses and produce a product that better fits market preferences.

Question 13

What is implied by the first-mover disadvantage Undeveloped supply and distribution channels?

Answer 13

Often no appropriate suppliers or distributors exist of new-to-the-world technologies. The firm may need to develop its own supplies and distribution service, or assist in the development of these markets.

Question 14

What does the first-mover disadvantage Immature enabling technologies and complements imply?

Answer 14

Firms development often rely on other producers of enabling technologies. Many producers also need complementary goods to be useful or valuable. When new technologies are introduced to the market, important complements may not yet be fully developed, hindering the adoption of the innovation.

Question 15

What are enabling technologies?

Answer 15

Component technologies that are necessary for the performance or desirability of a given innovation.

Question 16

What does the first-mover disadvantage Uncertainty of customer requirements imply?

Answer 16

Uncertainty what product features customers ultimately desire and how much they are willing to pay for them. Very new technologies: market research little help, customers don’t know how they should value the technology.
→ Revise as the market reveals customer preferences.
First movers can shape customer preferences by establishing their product design, and through customer education (expensive).

Question 17

What are factors influencing optimal timing of entry?

Answer 17

1. Certainty of customer preferences
2. Improvement over previous solutions
3. Does the innovation require enabling technologies, and are these technologies sufficiently mature?
4. Do complementary goods influence the value of the innovation, and are they sufficiently available?
5. How high is the threat of competitive entry?
6. Is the industry likely to experience increasing returns to adoption?
7. Can the firm withstand early losses?
8. Does the firm have resources to accelerate market acceptance?
9. Is the firm’s reputation likely to reduce the uncertainty of customers, suppliers, and distributors?

Question 18

If there is high threat of competitive entry, do you want to enter the market early or not?

Answer 18

Enter earlier to establish brand image, capture market share and secure supplier/distributor relationships.

Question 19

What is a parallel development process?

Answer 19

When multiple stages of the new product development process occur simultaneously.

Question 20

What are some strategies that can be used to improve timing options?

Answer 20

• Fast-cycle development processes -> refine/beat earlier entrants. Very fast = can reap both first-mover and second-mover advantages.

Development time can be shortened by using strategic alliances, cross-functional NPD teams, and parallel development processes (ensuring required core capabilities).