Title: Entry Timing (First mover Advantages)
1Entry Timing(First mover Advantages)
2Agenda
- Timing of Entry
- Demand and technology uncertainty
- First and Second mover advantages
3Innovation and uncertainty
- Technological uncertainty
- Uncertainty regarding the technological features
of the product - Standards
- Dominant design
- Market/Demand uncertainty
- Uncertainty regarding the size and growth rates
of the markets for new products - Potential uses
- Substitute products
- Complementary products
4Back to Takeoff timings
Firms
Sales
5Resolution of Technology and Demand Uncertainty
Technological Uncertainty Resolved
Demand Uncertainty Resolved
6When should firms enter?
7In-Class Activity
8When to enter
- Importance of lead time (the degree to which
innovation can be protected) - The nature of risk and the ability of the firm to
manage it - The importance and availability of complementary
resources - The potential to establish a standard
9First mover Advantage (?)
- A first mover is a firm that takes an initial
competitive action. - Advantages of first movers
- If successful, the firm earns above-average
returns until other competitors are able to
respond effectively. - Develop customer loyalty.
- Harley-Davidson has been able to maintain a
competitive lead in large motorcycles due to
intense customer loyalty. - Disadvantages of first movers
- High risk
- High development costs
- High demand uncertainty
10Second mover Advantage (?)
- A second mover is a firm that responds to a first
movers competitive action often through
imitation or a move designed to counter the
effects of the initial action. - BankOne (Internet banking) New Balance (athletic
shoe industry) - Advantages of second movers
- Reduction in demand uncertainty
- Market research to improve satisfying customer
needs - Learn from the first movers successes and
shortcomings - Gaining time for RD to develop a superior
product - Disadvantages of second movers
- Loss of opportunity to establish brand loyalty
- If significant learning curve through moving
first, then giving up competitive advantage
11When to enter a market First mover (dis)advantage
- Advantages
- Above-average returns until other competitors
respond effectively - Start down the learning curve earlier
- Opportunity to gain customer loyalty
- Opportunity to set standards
- Disadvantages
- Uncertainty about demand
- High development costs
- Risk of adopting a losing standard (Beta/VHS)
12Moving Second Imitate and counter
- Advantages
- Reduction in demand uncertainty
- Market research to improve satisfying customer
needs - Learn from the first movers successes and
shortcomings - Gaining time for RD to develop a superior
product - Dont have to educate consumers
- Disadvantages
- Switching costs may make taking customers
difficult - Brand loyalty/customer familiarity
- Standards
- Initial cost disadvantage May not survive until
learning curve advantages have leveled out
13Success of leaders and followers
PRODUCT INNOVATOR FOLLOWER WINNER Jet
Airliners De Havilland (Comet) Boeing
(707) Follower Float glass Pilkington Corning
Leader X-Ray Scanner EMI General
Electric Follower Office P.C. Xerox IBM Foll
ower VCRs Ampex/Sony Matsushita Follower Diet
Cola R.C. Cola Coca Cola Follower Instant
Cameras Polaroid Kodak Leader Pocket
Calculator Bowmar Texas Instruments Follower Mi
crowave Oven Raytheon Samsung Follower Plain
Paper Copiers Xerox Canon Not clear Fiber
Optic Cable Corning many companies Leader Vide
o Games Players Atari Nintendo/Sega/Sony Followe
rs Disposable Diapers Proctor
Gamble Kimberly-Clark Leader Web
browser Netscape Microsoft Follower PDA Psion
, Apple Palm Follower MP3 music
players Diamond Multimedia Sony
(others) Followers
14Key Take-aways
- Timing of Entry
- Comparing first and second mover advantages
- Demand and technological uncertainty is key to
decision making - Entering early may give better potential to set
standards in industry