Session 4: Moving first or following fast? Flashcards
What are the categories of entry?
- First movers
- Fast followers
- Late entrants
What’s the definition of a first mover?
the first entrants to sell in a new product or service category (“pioneers”)
What’s the definition of a fast follower?
Early to market but not first.
What’s the definition of a late entrant?
Late entrants do not enter the market until the product begins to penetrate the mass market or later.
Benefits and risks of moving first
Benefits:
- Temporary monopoly
- Opportunity to build brand loyalty and technological leadership
- Potential for preemption of scarce assets
- Potential to exploit buyer switching costs
- Chance to define a standard
Risks:
- High research and development expenses
- Uncertainty of customer requirements
- Undeveloped supply and distribution channels
- Immature enabling technologies and complements
risks of moving first
Risks:
- High research and development expenses
- Uncertainty of customer requirements
- Undeveloped supply and distribution channels
- Immature enabling technologies and complements
Benefits of moving first
Benefits:
- Temporary monopoly
- Opportunity to build brand loyalty and technological leadership
- Potential for preemption of scarce assets
- Potential to exploit buyer switching costs
- Chance to define a standard
Explain Suarez & Lanzolla’s model
Suarez & Lanzolla’s model
Pace of market adoption \+ Pace of technology evolution = Durability of First Mover advantage
Slow pace of market adoption allows early entrants to develop production and distribution facilities and keep up with demand.
Slow pace of technology evolution makes it harder for late entrants to differentiate themselves and gives time to erect entry barriers (patents)
What does calm waters mean?
Slow Market adoption, slow Technology evolution
DURABLE FMA
(e.g. Hoover: slow uptake in hoovers and absence of tech improvements, allowed Hoover to be market leader)
When the market leads
Fast Market adoption, slow Technological Evolution
When the market leads, it is difficult to satisfy demand in an emerging market.
Competitors can introduce highly similar products (particular if patents offer weak protection) at a fraction of the R&D investment.
Only through massive investment in marketing, FMAs may be durable.
INVEST IN MARKETING
When the technology leads
Slow M, fast T
When the technology leads, followers can differentiate via technology, potentially avoiding earlier technological shortcomings from early entrants.
Slow market uptake means profits of early entrants were already limited.
Only through massive investment in R&D, FMAs may be durable.
What happens in Rough waters?
fast M, fast T
When technology evolves quickly, followers can differentiate via technology, potentially avoiding earlier technological shortcomings from early entrants.
When the market adopts quickly, it is difficult to satisfy the growing demand.
Only through massive investment in R&D and marketing, FMAs may be durable.
What are the four types of situations faced by companies according to Suarez & Lanzolla’s model?
FM Advantage relies on situation
1. Calm Waters: Slow M, Slow T, Durable FMA 2. Market Leads: Fast M, Slow T invest in Marketing and capacity 3. Technology Leads: Fast T, slow M 4. Rough Waters: Fast T, Fast M
Other Factors influencing timing of entry
- Entry barriers
- Enabling technologies
- Increasing returns to adoption
- Reputation may decrease uncertainty
First mover advantage summary
A first mover may be able to build brand loyalty and a reputation for technological leadership, pre-emptively capture scarce resources and exploit buyer switching costs.
First movers, however, carry a large burden of R&D expenses and face uncertainty about consumer preferences and often poor supplier markets and complementary technologies. Fast followers may take advantage at the expense of first movers.
The optimal time of entry depends on a variety of factors, most crucially on the speed of technology change and the pace of market evolution.
