Entry Timing (First mover Advantages)

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Entry Timing(First mover Advantages)
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Agenda

• Timing of Entry
• Demand and technology uncertainty
• First and Second mover advantages

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Innovation 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

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Back to Takeoff timings
Firms
Sales
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Resolution of Technology and Demand Uncertainty
Technological Uncertainty Resolved
Demand Uncertainty Resolved
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When should firms enter?
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In-Class Activity

• Synthes Case Discussion

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When 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

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First 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

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Second 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

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When 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)

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Moving 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

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Success 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
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Key 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