Chapter 5 Timing of Entry Flashcards
In which 3 categories are entrants often divided?
first movers (or pioneers), which are the first to sell in a new product or service category;
early followers (also called early leaders), which are early to the market but not first; and
late entrants, which enter the market when or after the product begins to penetrate the mass market
What are the first-mover advantages?
Being a first mover may confer the advantages of brand loyalty and technological leadership, preemption of scarce assets, and exploitation of buyer switching costs.5 Furthermore, in industries characterized by increasing returns, early entrants may
accrue learning and network externality advantages that are self-reinforcing over time
What are monopoly rents?
The additional returns (either higher revenues or lower costs) 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.
Which scarce resources can firms capture when entering the market early?
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.
What is exploiting buyer switching costs?
Once buyers have adopted a good, they often face costs to switch to another good
if a product is complex, buyers must spend time becoming familiar with its operation; this time investment becomes a switching cost that deters the buyer from switching to a different product. If buyers face switching costs, the firm that captures customers early may be able to keep those customers
even if technologies with a superior value proposition are introduced later.
What are reaping increasing returns advantages?
In an industry with pressures encouraging adoption of a dominant design, the timing of a firm’s investment in new technology development may be particularly critical to its likelihood of success. For example, in an industry characterized by increasing returns to adoption, there can be powerful advantages to being an early provider; a technology that is adopted early may rise in market power through self-reinforcing positive feedback mechanisms, culminating in its entrenchment as a dominant design.
What is incumbent inertia?
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.
What are the disadvantages of first-movers?
- Developing a new technology often entails significant research and development expenses, and the first to develop and introduce a technology typically bears the brunt of this expense.
- When a firm introduces a new-to-the-world technology, often no appropriate suppliers or distributors exist.
- When firms develop technologies, they often rely on other producers of enabling technologies.
- A first mover to the market may face considerable uncertainty about what product features customers will ultimately desire and how much they will be willing to pay
for them.
What are enabling technologies?
Component technologies that are necessary for the performance or desirability of a
given innovation
How does a firm decide whether to attempt to pioneer a technology category or to wait while others do so
The answer will depend on several factors, including
1. How certain are customer preferences?
2. How much improvement does the innovation provide 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?
What are parallel development process?
When multiple stages of the new product development process occur
simultaneously.
What is a strategy to improve timing options?
if the firm intends to refine an earlier entrant’s technology and beat the earlier entrant to market with a new version of this technology, it must have fast-cycle development processes. If a firm has very fast development processes, the firm not only has a better chance at being an early entrant, but it can also use experience gained through customers’ reactions to its technology to quickly introduce a refined version of its technology that achieves a closer fit with customer requirements. In essence, a firm with very fast development deployment processes should be able to take advantage of both first- and second-mover advantages.
How can development time be greatly shortened?
The research on new product development cycle time indicates that development time can be greatly shortened by using strategic alliances, cross-
functional new product development teams, and parallel development processes.
