The Disadvantages of the Late Mover Theory
Google and Apple Computers are successful examples of the advantages of letting other companies act as pioneers in product markets. Rather than be forced to fend off the slings and arrows that first movers must endure, some late movers achieve long-term success by learning from the actions of others. These two companies first learned from others about product design, consumer tastes, potential market size and manufacturing techniques. Only then did they develop products and processes that did them one better. But being a late mover has its disadvantages as well.
The timing of a company’s entry to a new market determines the risks, opportunities and environment that await it. Consequently, market entry timing -- first mover, second mover or last mover -- also affects the company’s market power, strategic options and pre-emptive opportunities, each of which influences a company’s return on investment.
With no other companies competing for key resources, the industry pioneer can acquire commitments from suppliers for raw materials, new technology and distribution channels. These commitments provide the first mover a cost advantage and a disadvantage for the late mover who pays higher prices for access to resources. For example, early market entrants have a larger collection of facilities, distribution networks, patentable technology, natural resources and employee expertise from which to choose than do late movers.
First movers set the standard for particular products or services in an industry, and it’s difficult to compete with a subjective standard, such as a man’s feeling about a particular car. Also, imitation is expensive, and the lag between initial research and development and product introduction can be extensive.
Making a first move into a market is equivalent to a pre-emptive strike, because it creates a lead for the pioneering company. These first movers have high rates of repeat purchases, effective marketing programs and growing sales. Gaining market share through imitation is difficult for a late mover. Consequently, the late mover may attempt to design innovative new products to attract customers, which can be expensive.
Customer loyalty for pioneering products tends to be greater than for late mover products. The early mover’s market and competitive position are entrenched by this loyalty. The importance of customer loyalty to first movers is demonstrated by the success of Citibank and Bank of America in South American countries.
First movers can create entry barriers to the markets they serve. For example, Citibank and Bank of America established such barriers in South America by acquiring local banks, partnering with Visa International and devising new banking methodologies, such as Internet banking. These entry barriers deprive late movers of the more convenient and profitable ways to enter a new market.