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First Mover Advantage is when a company is the first to launch a new product. It gives the company a head start over competitors. This first entry can help the company build strong brand recognition, customer loyalty, and a larger market share before others join in.
Have you wondered why some businesses succeed more than others? Businesses use some tactics to gain loyal customers and stand out in the competitive market. One such tactic is the first mover advantage. This means that the company is the first to enter a new market or introduce its product or service in the market. Amazon and Tesla dominate today's market mainly because they use first-mover advantage tactics.
What Is the First Mover Advantage?
First mover advantage means the benefits a company gets when it enters a new market or launches a new product or any particular service in a market for the first time. The concept was developed between the 1980s and the 1990s. The Coca-Cola soft drink is another good example of the first mover advantage. It was the first produced soft drink in the United States in 1986. It built a strong brand recognition through unique advertising, packaging and widespread B2C distribution. It invested heavily in marketing before any competitor introduced any soft drink. Today, Coca-Cola is sold in more than 200 countries and holds more than 45% of the market share in the United States.
The Psychology Behind Being a First Mover Advantage
A brand introduces a product and creates a benchmark in people's minds whenever it enters a market.
Psychologically, consumers always remember the first thing they see or experience, known as the primacy effect. This effect makes a brand more memorable, even if competitors offer similar product options later.
Again, whenever a brand enters a new market and constantly engages with the audience, it builds trust, which is highly important for a new product.
First Mover Advantage Examples
Amazon entered the online market in the 1990s. It was when very few business owners were doing online ecommerce marketplace businesses. It used that time to build an efficient supply chain operation and gather valuable customer data. Amazon was already several steps ahead by offering a wider range of products, faster delivery and personalized recommendations when online shopping started becoming popular. It became nearly impossible for competitors like Flipkart to provide such services or build a strong logistics and supply chain.
Similarly, Tesla introduced electric vehicles when most automobile companies invested time improving gasoline engines. Its early innovations in battery technology and self-driving software helped to create a strong position in the electric vehicle market. Both companies introduced new products or services in the market and improved them consistently, which helped them stand out even today.
Benefits Of First Mover Advantage
There are various benefits of the first mover advantage. Here is a list of them below.
1. Market Leadership
When a company enters a new market for the first time, it slowly establishes a dominant position before its competitors introduce similar products.
2. Brand Recognition And Loyalty
When a brand introduces a new product or service, it becomes the most familiar name in the market. It slowly builds trust in customers, especially if they experience positive results after using the product or service.
3. Technological or Process Patents
When a company introduces a new product, it can file a patent. This protects its innovations but also creates a barrier for its competitors. Example -Tesla Company has filed several patents for its powertrain, charging system and vehicle architecture.
4. Access to Key Resources
A Company that enters the market for the first time can have access to essential resources like the best suppliers, skilled workers and strong business partners. It helps a company to grow faster compared to its competitors.
5. Switching Costs
When customers start using a product or service, they do not want to change it even if a new option comes on the market. It is known as a switching cost. First movers can exploit it and build loyalty and reputation in the market. For example, when a customer does product shopping, often from Amazon, he usually saves his address and payment details. He does not want to enter a new marketplace and website.
The Flips: Risks And Disadvantages of First Movers
The disadvantages of being a first mover are as follows.
1. High R&D And Marketing Costs
First movers must spend a lot of money researching and developing a product. For example, if a company develops a gadget for the first time, it has to spend more money on designing and advertising, as people are unaware of it.
2. Unproven Market Response
When a company introduces a product or service, customers may not like it, leading to failures.
3. Market Saturation Before Maturity
The first mover sometimes spends a lot of money to build a market. Soon, however, many competitors introduced the same product or service to the market. The profit of the first movers decreases because of market saturation.
When First Mover Advantage Does Not Work: Famous Failures
1. Friendsterv(Social Media)
Friendster was a social media platform that was launched in 2002. It soon gained millions of customers, but the site had a very slow performance. It was scaling first, so new online platforms like MySpace and Facebook took its place. They had better features and customer experience compared to Friendster.
2. Webvan
Webvan is an online grocery delivery platform that was introduced in the 1990s. It spends heavily on infrastructure, warehouse and transportation systems. However, customers were not interested in buying groceries online. This led to the failure of the Webvan Company.
3. Blackberry
BlackBerry was once quite popular in the smartphone industry. Its secure emails and physical touchboards were quite popular in the early 2000s. However, it failed to adapt touchscreens and apps, which were later introduced by Apple iPhones and Android phones.
How To Build a First Mover Advantage Strategy?
1. Market Research And Timing
To get a first mover advantage, you need to study the customer behaviour, analyse the market and then introduce the product. For example, in the early 2000s, internet speed was too slow for streaming. Netflix was delivering DVDs to people by mail. However, when internet technology improved, Netflix realised that people were more interested in online content, and they moved into streaming.
2. Protect Your Advantage
When introducing a product in the market, you have to file for intellectual property. This makes it difficult for competitors to copy the same product or service. For example, Apple filed numerous patents for its unique design and software features.
3. Build Scalable Infrastructure
You must utilize advanced technology like automation to grow your business and stand out in this competitive environment. You can consider an example of Amazon. It started with an online bookstore. It invested in automated warehouse systems and fast delivery networks. When more people began online shopping from Amazon seller portal, it could handle it properly because it had invested earlier in warehouses and technology.
4. Innovate Continuously
The business needs to continuously innovate its products or services to stay on top in a competitive environment. For example, Tesla keeps updating its software and battery technology to stand out.
Final Words
A company can introduce a new product or service in a new market and build brand recognition and a massive customer base. However, certain risks are associated with first mover advantage, such as customers not liking the product. If the customer does not like the product, the business has to face a huge loss of money.
Businesses must properly conduct market research and introduce the product promptly to reduce and improve the failure rate. It should constantly innovate its products to stay outstanding in this competitive environment.
