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First to Market, First to Fail Real Causes of Enduring Market Leadership

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Is it important to be a pioneer in new markets? If pioneers are ... Illustrated through fascinating stories of business history. First to Market, First to Fail? ... – PowerPoint PPT presentation

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Title: First to Market, First to Fail Real Causes of Enduring Market Leadership


1
First to Market, First to Fail?Real Causes of
Enduring Market Leadership
  • Peter N. Golder
  • NYU Stern School of Business
  • Market Research Council
  • March 25, 2005

2
Outline
  • Is it important to be a pioneer in new markets?
  • If pioneers are not successful, why not?
  • How do latecomers succeed?
  • What are the real causes of enduring market
    leadership?

3
Is it important to be a pioneer in new markets?
  • Initial studies by researchers at MIT, Michigan,
    and elsewhere said Yes
  • Pioneers very rarely fail (or never fail!)
  • Pioneers have high market share 30-35
  • Market leaders tend to be pioneers 50-75
  • These results became conventional wisdom
  • Implication Be there first!!

4
Whos the Pioneer of?
  • Personal computers
  • Video recorders
  • Disposable diapers
  • Light beer
  • Safety razors
  • Soft drinks
  • Copiers
  • Word processing software
  • Web browser
  • Online bookseller
  • Microprocessor
  • Common Answers
  • Apple
  • Sony
  • Pampers
  • Miller Lite
  • Gillette
  • Coca-Cola
  • Xerox
  • WordPerfect or WordStar
  • Netscape or Mosaic
  • Amazon
  • Intel

5
Problems with Initial Research
  • Survival bias
  • Self-report bias
  • Retrospective bias
  • Imprecise measures

6
Our Approach
  • Avoid the problems of previous research
  • Led to archival/historical analysis
  • Include failures
  • Not just successful early entrants
  • Use independent reports, recorded as events
    occurred
  • Corroborate events with multiple, credible
    reports
  • Prospective view
  • Contemporaneous market definitions

7
Our Approach
  • The result
  • Forgotten details uncovered
  • Analysis of 66 markets leads to identification of
    general business principles
  • Illustrated through fascinating stories of
    business history

8
One Example
  • Which Company is
  • Worlds biggest chain of highway restaurants.
  • Pioneer in restaurant franchising.
  • Most strongly entrenched factor in the
    industry.
  • Highest quality investment vehicle.
  • Most fabulous success story in restaurant
    chains.
  • All quotes from Financial World, 1964-1967
  • McDonalds
  • No
  • Its Howard Johnsons

9
Another Example
  • Office copying is a field where Haloid (Xerox)
    will find plenty of competition. Most of the 30
    or so copying machine manufacturers are already
    in it with a variety of products including such
    strong competition as Minnesota Mining Mfg. Co.
    (Thermo-fax), Eastman Kodak (Verifax), and
    American Photocopy Equipment Co. (Apeco).
  • Business Week, September 19, 1959, p. 86

10
Whos the Pioneer of?
  • Personal computers
  • Video recorders
  • Disposable diapers
  • Light beer
  • Safety razors
  • Soft drinks
  • Copiers
  • Word processing software
  • Web browser
  • Online bookseller
  • Microprocessor
  • Correct Answers
  • MITS
  • Ampex
  • Chux
  • Trommers Red Letter
  • Star
  • Vernors
  • 3M
  • IBM
  • WorldWideWeb
  • Books.com
  • Intel

11
Key Findings on Pioneers
  • Failure rate 64
  • Market share 6
  • Market leadership 9
  • Median years of leadership 5 years
  • Current leaders enter 19 years after pioneers
  • In post 1974 categories, its still 5 years

12
Key Findings
  • Five factors drive the superior performance of
    enduring market leaders
  • Envisioning the mass market
  • Managerial Persistence
  • Relentless Innovation
  • Financial Commitment
  • Asset Leverage

13
Envisioning the Mass Market
  • Specific Kind of Vision
  • Dont be satisfied with a market niche
  • Unlock the mass market
  • Examples
  • Intels Microprocessor
  • Procter Gambles Disposable Diapers
  • Result
  • Lower margin at high volume dominates
    higher margin at low volume

14
Envisioning the Mass Market
  • Novel ideas about serving the mass market
  • Resolve seemingly conflicting elements of design
  • Gillette razor blades are high quality, yet
    disposable
  • FedEx is fast and reliable, yet reasonably priced
  • Combine existing components into one unique
    vision
  • World Wide Web
  • Outsiders often see these possibilities because
    theyre not constrained by the inside view

15
Managerial Persistence
  • Major product innovations result from a series of
    smaller innovations over many years
  • Luck or sudden breakthroughs uncommon
  • 6 years for Gillettes razor blade
  • 10 years for Pampers
  • Example
  • Video recorders
  • Persist before and after commercialization
  • Typically, at least several years from
    commercialization until sales takeoff

16
Relentless Innovation
  • Changes in technology or customer tastes can make
    current leaders obsolete
  • Obstacles to Innovation
  • Complacency
  • Gillette essentially taken over in the 1930s due
    to lack of innovation
  • Fear of cannibalizing existing products
  • Gillette (more recently) and Intel demonstrate
    the benefits of cannibalization

17
Financial Commitment
  • Resources necessary to
  • Develop new products and markets
  • Persist through initial period of low sales
  • Two components
  • Access to resources
  • Willingness to use resources
  • Examples
  • FedEx
  • Light beer

18
Asset Leverage
  • Leverage assets (strengths) from a related market
    and use them to enter a new market
  • Generalized assets
  • Can be transferred to a new category without
    necessarily losing value in the current category
  • Example
  • Diet Cola

19
Asset Leverage
  • Specialized assets
  • Requires cannibalization to pursue new market
  • Cannibalize current products, distribution
    channels, manufacturing
  • Example
  • Xerox

20
Will results hold outside these 66 categories?
  • Additional categories may uncover an additional
    general factor
  • Essentially the conclusion of Clayton Christensen
    in his foreword to our book
  • But, its unlikely that any of the five factors
    will become unimportant

21
What about pioneers rewards during initial
period of leadership?
  • Losses more common than profits
  • Long-run profits overwhelm any early profits

22
Practical Implications of Book
  • Dont enter late simply to be a late entrant
  • Dont be a pioneer simply to be the pioneer
  • Pioneering by itself has little, if anything, to
    do with long-term leadership
  • Focus on the five factors that dominate any
    impact of pioneering
  • The few successful pioneers practiced some or all
    of these factors
  • So did the much larger number of successful late
    entrants

23
Practical Implications of Book
  • Later entrants have specific advantages
  • Learn from pioneers mistakes
  • Benefit from pioneers product and market
    development
  • Be more certain about customer preferences

24
Practical Implications of Book
  • Market leadership advantages are only
    proportional to the size of the market
  • Yet, even in mature markets, market shares are
    less stable than widely believed

25
Market Share Stability
  • Current belief
  • Many brands that were leaders half a century ago
    are still market leaders today. Harvard
    Business Review, 1999
  • 19 out of 25 companies who were market leaders
    in 1923 were still the market leaders in 1983, 60
    years later Kotler textbook, 2003
  • If you take 25 popular product categoriesthe
    brands that were built 80 years ago are still
    the dominant brands in the business
    today. Jack Trout in Advertising
    Age March 14, 2005

26
What Really Happens to the Top Brands Over the
Long Run?
Source Golder (2000)
27
How to Create Cultures of Vision and Innovation
  • Emphasize emerging markets
  • Nurture unconventional visions and outsiders
    views
  • Cannibalize current products
  • Foster and reward individual talent
  • Replace bureaucracy with autonomy
  • Create product champions
  • Create mass markets for massive economies of
    scale and massive profits
  • Commit to product and market development, and
    stay committed after launch
  • Replace complacency with paranoia and passion
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