written by | June 2, 2022

What Is the First Mover Advantage and Drawbacks?

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First mover advantage refers to developing and launching a product or service before its competitors. This advantage is extremely valuable because it allows a first mover to earn customer loyalty, improve a product or service, set competitive market prices and establish the best suppliers. 

The advantage is most evident in industries like technology and consumer products. Among the First mover advantage's biggest advantages is brand name recognition, which engenders loyalty from existing customers and attracts new ones. 

Here's a look at a few of the benefits companies reap when they're the first ones to enter an area of service or product and some of the issues that may arise while being the first mover. 

Did You Know?

The first mover is an organisation which gets a competitive advantage due to bringing the first brand new product/service to the market. First movers normally establish strengthful brand customers and recognition loyalty.

What Is the First Mover Advantage and Drawbacks?

"First mover" advantage is the competitive advantage gained by the first company to bring an item or service into the market that is not yet explored or sector. 

Because it is the first to introduce a product or service and market, you have an undisputed chance to create an image and market share, and even consumers before other companies with similar products arrive in the market as competitors. 

Businesses may enter the market late yet still enjoy significant growth. But, being the first to enter has distinct advantages.

A few examples include:

  • Amazon launched its first online store in 1994, and it was the pioneer of eCommerce sites. Today, its success is tough to explain in words.
  • For example, eBay built the first meaningful online auction site in 1995 and has continued to grow. Today, eBay is ranked 43rd on Forbes' list of innovative companies. It has an annual revenue of ₹25.7 billion and a 2.8% growth rate. 
  • Hoover, which launched its first portable vacuum cleaner back in 1930, beat their competition by breaking records in new fields.

However, not every first-time entrepreneur is as successful.

Also Read: Why First-Time Entrepreneurs Fail with their Business Ideas

Advantages of Being a First Mover

  • It is possible to capture customers who don't want to pay switching costs as soon as competition comes in.
  • It is easier to brand yourself when you don't need to stand out from a similar product.
  • Patents can prevent competitors from copying your technologies, ideas, or techniques.
  • If there's a finite amount of resources, the first-mover may be able to grab them before the rest of the crowd arrives.

Benefits of Being a First Mover

Now that you know about the first-mover advantage meaning let’s know how it can be a first mover beneficial. The first company to move can benefit from economies of scale. This can help it cut costs while increasing production, resulting in a lower price for sales than its competitors. This gives it an advantage over its new competitors.

First-movers are favoured since they are more knowledgeable about their market before entering it. This helps them identify and respond faster than competitors and potential new entrants who take time to gather data and decide their entry or exit.

Price-Fixing Is the Key

To reduce production costs and other expenses, the first mover uses new competitors. Once they get there to the market, their costs are greater than those of the previous mover who keeps them in.

Advantages of Predation

The benefits of being the first to market can be extremely beneficial in making it difficult for new entrants to enter the market. Companies generally have a large market share and an established brand name, giving future competitors an advantage.

Advantages of a Choice

If it comes to establishing itself as a primary mover, the company will benefit from its choices. Producing both low and high quantities helps the first-movers limit their risk since it does not rely on one product or service to be successful.

Community Benefits

Being the first to join a market, the company gains benefits to the community. The first mover will develop solid relationships with customers, suppliers and the communities in which it is located. Benefitting from advantages over future competitors in the information and resources. Even market stability permits it to expand into new markets similar to those it currently has.

Disadvantages of Being a First Mover

Just knowing the first mover's meaning is not enough. A first mover isn't always advantageous! There are a few challenges also:

Risky for Investors

If the product isn't evaluated and validated on the market, the product is at risk of being rejected. This can cause many problems for investors. Paying back to investors becomes a challenge for the business owner, and also, it's difficult to quickly build a plan "B."

Lock-Out in Effect

Your competition could use this product as the base for developing their own. They will be able to eliminate the weaknesses of the first product and then create an enhanced product that can drive your company out of the market.

Unproven Product

There are a lot of risks. The market might not be willing or ready to buy your product, and if it's not, you may lose significant amounts of money for equipment and other services required to make the product. As there are no competitors, there is no competitor research in place. So, the business owner and the team behind the development have lesser ideas on what could be better and how to bring betterment. 

Examples of Successful Companies That Were Not First Movers

Some businesses were not among the first to move in their respective industries. However, they have become some of the most successful corporations in the world:

1). Facebook

In the days before Facebook existed, there were Friendster and Myspace. Before that, Classmates.com and SixDegrees.com established the basis for future social networks. SixDegrees was among the first users to create an account page, and Classmates.com allows you to meet people who attended your school. Facebook came into existence much later and wrote a stunning story of success. 

2). Starbucks

There were plenty of places to buy coffee before Starbucks arrived. However, the focus on creating Starbucks and "third place" between work and home was something that made Starbucks the phenomenon it is today. 

3). Google

In the beginning, it wasn't evident that Google would be the leading search engine that was so effective. It was that "google" would become a word within the English dictionary. Other search engines such as Magellan, Infoseek and Yahoo existed before Google. However, Google was more successful and so well that they had control over 64% of the search activity, 3 times more than their nearest rival.

Also Read: Online Business: Advantages and Disadvantages

4). Zappos

The world of shoes isn't something which is the first thing that comes to mind when you think of innovations. However, by launching the largest selection of shoes on the internet and a 365-day free returns policy, Zappos became the biggest retailer of shoes online, surpassing department stores that have been in existence for a long time and were thought to be of as retail staples.

5). Spotify

There were many sites where one could (legally) access music online From Pandora and SoundCloud. Spotify's user-friendly and streaming service on demand has been able to convert users who previously streamed songs illegally into customers who pay. Spotify now has control of 86% of the on-demand streaming market.

Conclusion

The early mover advantage can be limited to distribution and supplier partners, the first customer network, and exit strategies. If competitors can use a First mover's product, they can use it to develop their own, much-improved version. It is crucial to educate the target audience to ensure the best possible sales.

In light of the points discussed in the article, companies can focus on the direction of being first or settling for being second. Becoming the first one to introduce new technologies while avoiding those taking risks and launching into new markets ahead of you could be an effective combination. 

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FAQs

Q: Who are second movers?

Ans:

The meaning of second mover advantage is the organisation’s advantage by following others into the market of the product that’s already available.

Q: What is the second mover’s benefit?

Ans:

The second-mover benefit is a term used in business to refer to the possibility of standing second following an initial market leader. In a second-mover scenario, the company can observe how the first entrant performs in the industry. The company then steps to fill in any gaps in its offerings or services by introducing its product or service.

Q: What’s the importance of the first-mover advantage?

Ans:

The first-mover advantage in business is capturing the company's initial market. There is greater brand recognition, there's an opportunity for improvement and feedback, and, lastly, it increases customer loyalty. These are the elements that make the advantage of first moving important.

Q: What’s the best first-mover advantage example?

Ans:

The finest first-mover example advantage is SpaceX. It was the first private space-based company founded to conduct research in space and the development of technology for habitability on other planets. Today, there are other companies such as Scaled Composites and Blue Origin. But none of them received much publicity or attention, not as much as SpaceX.

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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.