Strategy Formulation: First

Strategy Formulation: First & Late Mover Theories

American Intercontinental University

Strategic Management/MGT680-1102A-02/ Unit 3 IP

Introduction

The order of market entry determines the competitive advantages in a manner that suggests they are the pioneers –first movers- that are able to attain greater advantages. Sustainability of competitive advantage is one of the topics of greatest interest to strategic management and marketing. The time of entry into the market determines the competitive advantages favoring the first movers in the market. The first mover's advantagesreflect in consumer preferences and formation in the creation of switching costs in the acquisition of scarce resources and in gaining greater market share. However, sometimes late movers or those who enter the stage of maturity get more advantages in other aspects that are not market share, such as the growth of the firm, perceived quality and dissemination of competitors (Bordonaba Juste, Palacios & Polo Redondo, 2005). Therefore, this project discusses advantages and disadvantages of the theories of first and late move, identifying at least four firms found in each of these theories, as well as a recommendation regarding which theory follow.

First Movers Theory

This theory refers to the advantages that any business, firm, organization, and/or company has when is launching a new service or product, or participating in a new market prior to rival businesses, firms, organizations, and/or companies (David, 2011).

Pros & Cons

Within first movers' advantages, we can mention that companies developing a pioneering strategy (first movers) will have a cost advantage in relation to companies with a follower strategy. The advantage, allowing companies to obtain more results, set mainly by market entry barriers, which will have to overcome those companies entering the same market after the pioneer. Another possible advantage is that produced by the possibility for early entrants to limit the space in the market for the products of competitors and influence the preferences of consumers(Bordonaba Juste et al., 2005).

Besides, within the disadvantages found for first movers we can mention the high costs that first movers have due to all promotion that they have to do, the investment in the education of the consumer to know their service and/or product, and the product supply.First movers have to face the ignorance that they have regarding the context. Also as pioneer of a service and/or product, they have a highly probability to make serious mistakes. Finally, due to their innovative and pioneers position they will be facing ahigh-risk volume in different aspects that will be unforeseen and surprising (David, 2011).

First Movers

Advantages Disadvantages

1. Ability to seize the market 1. High promotion costs, consumer education, and product supply.

2. Cost advantage that bind customers 2. Ignorance of the context

3. Establishing a strong brand name 3. Serious errors

4. Cost advantage that bind customers 4. High risks

5. Market positioning 5. Lack of expertise and resources

Late Movers Theory

Late movers are also known as slow movers and fast followers. This theory refers to any business, firm, organization, and/or company that is not entering to a market adopting the position of followers of others services and/or products. According to David (2011) if late movers are able to imitate or copy the leading business, firm, organization, and/or company the services and/or products, can be an effective strategy launching a second generation of the service and/or product (David, 2011).

Late Movers

Advantages Disadvantages

1. Learn and see the mistakes of the first movers 1. Hard to get market share

2. Leveraging the investments of the pioneers in learning and customer education 2. Difficult to offer cost-shifting

3. Lower risk 3. Indulge in wide-ranging marketing and build a marketing campaign to make consumers to switch to them.

4. Familiarity with the existing product 4. Face first movers' copyrights guard

5. Upgrade and correct first movers' product and/or services 4. Take out the first movers' product/service name from consumers

Examples on Real Firms

First Movers Firms

Successful Failure

Name Product Name Product

EBay Action site Ford Edsel

Amazon Electronic book - Kindle Sony Betamax

Apple iPod Coca Cola New coke

Whirlpool Refrigerators with ice dispenser in the door Polaroid Instant home movies

Microsoft Operational System Pepsi Crystal Pepsi

Apple iPad IBM PCjr

Sony Walkman Levis Type 1 jeans

Walt

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