What’s it: First-mover disadvantages refer to the unfavorable circumstances or conditions when the firm is first in the market. The first movers were the companies that introduced the product to the market first. Being the first on the market is sometimes profitable and sometimes not.
The first mover has several advantages over the players afterward. It includes:
- Large market share because the company took longer to build a customer base
- High customer loyalty due to the company’s strong reputation makes customers reluctant to take risks to try new products
- A more intensive distribution network, either built internally or in collaboration with major retailers or distributors
- Long-term relationships with suppliers, enabling companies to get quality inputs at more affordable prices
- Gain more through experiential effects and the learning curve.
However, not all of these advantages last. Later entrants (followers) may be more successful learning from first-mover mistakes.
Causes of first-mover disadvantages
First-mover status is not always favorable. Some of the weaknesses attached to them, including:
First, the first movers bear substantial investment to develop new markets. Companies must start technology, develop distribution channels, and educate customers about products. All of this can be very expensive and time-consuming.
But, it turns out, buyer loyalty is weak. Consumers may get higher satisfaction from follower products.
Followers do not bear the expensive initial investment. They may not need to spend more money educating consumers. Development costs are also lower as they can inspect and fine-tune products from first movers. Because the version is better, consumers may prefer their product.
Second, first movers are more prone to mistakes as they face uncertainty in new markets. The risk of rejection is high because consumers are reluctant to try new products. Only a few may be willing, such as innovators and early adopters (see innovation diffusion). However, they usually cover a small proportion of consumers.
Third, followers can imitate the skills and knowledge the first movers have acquired expensively. They can learn from the mistakes first movers make and improve the product or way it is sold. They come to the market with superior offers to capture more market share.
Fourth, first movers may invest heavily in older technology. Instead, followers can take advantage of the available new technology.
First-mover skills and technology are relatively easy for followers to imitate. As a result, followers can outpace first movers by, for example, adopting more sophisticated production techniques.
Fifth, the wrong focus on strategy. Innovators and early adopters are the first movers’ prime customers. The firm may be more likely to direct its resources and capabilities to satisfy the needs of both. They are too late to divert resources when the early majority enters the market.
Conversely, followers may focus on the early majority rather than on innovators and early adopters. Since the early majority covers a large proportion of the market population, followers soon acquire a large customer base, resulting in high sales volumes and economies of scale.