What Is a First Mover?
A first mover is a service or product that gains a competitive advantage by being the first to market with a product or service. Being first typically enables a company to establish strong brand recognition and customer loyalty before competitors enter the arena. Other advantages include additional time to perfect its product or service and setting the market price for the new item.
First movers in an industry are almost always followed by competitors that attempt tocapitalizeon the first mover's success and gainmarket share. Most often, the first mover has established sufficientmarket shareand a solid enough customer base that it maintains the majorityof the market.
Key Takeaways
- A first mover is a company that gains a competitive advantage by being the first to bring a new product or service to the market.
- First movers typically establish strong brand recognition and customer loyalty.
- The advantages of first movers include time to develop economies of scale—cost-efficient ways of producing or delivering a product.
- The disadvantages of first movers include the risk of products being copied or improved upon by the competition.
- Amazon and eBay are examples of companies that enjoy first-mover status.
Examples of First Movers
Businesses with a first-mover advantage include innovators, Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY). Amazon created the first online bookstore, which was immensely successful. By the time other retailers established an online bookstore presence, Amazon had achieved significant brand recognition and parlayed its first-mover advantage into marketing a range of additional, unrelated products. According to Forbes's "The World's Most Innovative Companies" 2019 ranking, Amazon ranks second. It has annual revenues of $280 billion and, through the end of 2019, had a 20% annual sales growth rate.
eBay built the first meaningful online auction website in 1995 and continues to be a popular shopping site worldwide. It ranked 43rd on the Forbes list of innovative companies. The company generates $287 billion in annual revenues, with a 2.8% annual sales growth rate.
Advantages of First Movers
Being the first to develop and market a product comes with many prime advantages that strengthen a company's position in the marketplace. For example, a first-mover often gains exclusive agreements with suppliers, sets industry standards, and develops strong relationships with retailers. Other advantages include
- Brand name recognition is the main first-mover advantage. Not only does it engender loyalty among existing customers, but it also draws new customers to a company's product, even after other companies have entered the market.Brand name recognition also positions companies to diversify offerings and services.Examples of dominant brand name recognition of a first-mover include soft drink colossus Coca-Cola (NYSE: KO), auto-additive giant STP (NYSE: ENR), and boxed-cereal titan Kellogg(NYSE: K).
- Economies of scale, particularly those regarding manufacturing or technology-based products, is a massive advantage for first movers.The first mover in an industry has a longer learning curve, which frequently enables it to establish a more cost-efficient means of producing or delivering a product before it competes with other businesses.
- Switching costs let a first-mover build a strong business foundation. Once a customer has purchased the first mover's product, switching to a rival product may be cost-prohibitive. For example, a company using the Windows operating system likely would not change to another operating system, because of the costs associated with retraining employees, among other costs.
Disadvantages of First Movers
Despite the many advantages associated with being a first mover, there are also disadvantages.For example, other businesses can copy and improve upon a first mover's products, thereby capturing the first mover's share of the market.
It costsapproximately 60% to 75% less to replicate a productthan it costs to create a new product.
Also, often in the race to be the first to market, a company may forsake key product features to expedite production.If the market responds unfavorably, then later entrants could capitalize on the first mover's failure to produce a product that aligns with consumer interests; and the cost to create versus the cost to imitate is significantly disproportionate.
FAQs
What is the First Mover Advantage? The first-mover advantage refers to an advantage gained by a company that first introduces a product or service to the market. The first-mover advantage enables a company to establish strong brand recognition and product/service loyalty before other entrants to the market.
What is an example of a first-mover advantage? ›
What is first-mover advantage example? An example of a first mover is Amazon, the first generator of the online store for books. Also, Amazon was able to attain significant brand recognition before the entry of other competitive firms.
What are the advantages and disadvantages of first mover? ›
What are the advantages and disadvantages of being a first mover? Advantages include the ability to establish a strong brand and gain market share. Disadvantages include high development costs, educating the market, and the potential for being surpassed by later entrants.
What is an example of a first-mover advantage game theory? ›
In many situations, it pays to determine the firm's level of output first, before other firms in the industry can decide how much to produce. Game theory demonstrates how many real-world firms determine their output levels in an oligopoly. Ethanol provides a good example of the first-mover advantage.
What is the first-mover advantage process? ›
A first - mover advantage is the process of gathering information about the competitive environment, including competitors plans, activities, and products to improve a company's ability to succeed.
What are three advantages of being a first mover? ›
The first-mover advantage is the benefit of increased brand recognition , customer loyalty and increased sales that often accompany a business that is the first to enter the marketplace with a new product.
What causes first mover advantages? ›
Lieberman and Montgomery (1988) identified three primary sources of FMA: (1) technological leadership, (2) preemption of assets, and (3) buyer switching costs. First-movers, they who can run down the learning curve most quickly, can gain comparative advantage in cost competition.
What is meant by first mover disadvantage? ›
The 'first mover' is a business that enters the market with a new product or service, before other rivals. Often, this is a good thing (known as a first-mover advantage). But being the 'first' can also throw up challenges. These challenges are referred to as 'first-mover disadvantage'.
What is an example of a first mover failure? ›
Another example is Blockbuster. The video rental giant was a first mover in the market, and for many years it dominated the industry. But it failed to adapt to the rise of streaming services like Netflix, and ultimately filed for bankruptcy in 2010 after more than 25 years in business. One more is Kodak.
Which company has first-mover advantage? ›
By the time their competitors introduce similar products or services, consumers are already loyal to the original company. Only large companies have the ability to acquire first mover advantage. Coca-Cola is an excellent example of a first mover company.
As the first mover in the smartphone market, Apple established itself as a market leader, transforming not only the mobile phone industry but also how we interact with technology.
What is first-mover advantage for students? ›
First movers into a market benefit from learning, network effects, size and access. Learning is the advantage first movers get through actually producing a good or delivering a service. Being the first in means they'll have an edge as they become more efficient over time.
What is the opposite of first-mover advantage? ›
Second movers, also known as improvers and late movers, capitalize on learning from the mistakes of their predecessors and improving upon an already existing, familiar market. They can reverse-engineer new products to make them better and cheaper, eventually capturing the first movers' market share.
What is the second first-mover advantage? ›
Second-mover advantage occurs when a firm following the lead of the first-mover is actually able to capture greater market share, despite having entered late. First-mover firms often face high research and development costs, and the marketing costs necessary to educate the public about a new type of product.
Which of the following is an example of a first-mover advantage quizlet? ›
You are first in line to buy a raffle ticket. Yes, this is an example of a first-mover advantage.
What is a first-mover advantage quizlet? ›
A market participant has first-mover advantage if it is the first person and gains a competitive advantage through control of resources. With this advantage, first-movers can be rewarded with huge profit margins and a monopoly-like status.
Is Coca-Cola a first-mover advantage? ›
By the time their competitors introduce similar products or services, consumers are already loyal to the original company. Only large companies have the ability to acquire first mover advantage. Coca-Cola is an excellent example of a first mover company. co*ke was not the first soda to reach customers' hands; Dr.
