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    Product Development: The "First-Mover" or "Late-Mover" Theory

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    The manager of my company is deciding whether to develop a brand new product not yet seen in the marketplace or a version of a competitor's product that has already been launched into the marketplace.

    Management has called a meeting to discuss which way to go. They want to know if they should follow the "first-mover" or "late-mover" theory. I have been assigned the task to develop a presentation for this meeting that will give evidence that either supports or disagrees with these theories.

    I will be doing speaker's notes on PowerPoint slides, I will be elaborating in bullet points in my presentation.

    I decided that it would be better to come up with a new version of a product already on the marketplace. (What do you think?)

    I reviewed Market Penetration, Horizontal Integration, Market Development, Backward Integration, Forward Integration.

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    Yet for all this, first-mover status is not without its drawbacks. The first and biggest of these is cost. In order to be a first-mover, an organization must be a pioneer, and this means incurring costs in terms of time and investment. Technology must be invented, distribution systems have to be established, and knowledge about new markets must be learned from scratch, sometimes painfully. For those who come to the market later, the costs of acquiring all this knowledge can be much lower: products can be reverse-engineered and improved on, and experienced staff can be hired away from the pioneering company to impart their knowledge.

    Another argument concerns risk. Without previous experience to draw upon, first movers usually make the worst mistakes in terms of judging whether a product will be suitable for the market. Successive companies can reduce risk by learning from these mistakes. The various strategies adopted by western companies entering the China market over the last decade clearly show the divide. Some rushed in as soon as it became apparent that Deng Xiaopeng's 'open-door' policy was here to stay, aiming to stake out their own market positions and capture first-mover advantage. Others, more cautious, chose to wait, convinced that many of the first-movers would get their fingers burned, leaving the late arrivals to capitalise both on the ensuing problems for the first-movers, and the lessons to be garnered from their defeat.

    Many first-movers do fail. Silicon Valley, the great hotbed of modern US entrepreneurship, is full of histories of companies that had first-mover advantage but still failed; it has been estimated that only about one in a hundred Silicon Valley start-ups survives for more than two years.
    Why do they fail? There are many reasons, but the most common is that having secured first-mover advantage, they do not devote sufficient resources to keeping it; the following companies learn rapidly from the first-movers and erode their competitive advantage before they are able to consolidate it. The second is that first-mover advantage is no absolute guarantee of success, and for reasons which must remain forever mysterious, late-arriving and sometimes inferior products often take over the market from the first-movers. Even Sony learned this to its cost, when its Betamax video recorder system was driven out of the market by VHS. One of the keys here is to remember another military axiom: 'never reinforce failure'. Once first-mover advantage is gone, and no amount of money will restore it.

    First-mover advantage is not just about getting there first: speed is necessary to success, but not in itself sufficient. The advantages of being first must be consolidated with resources - money, people and knowledge - to enable the advantage to be maintained and enlarged upon. No advantage lasts forever, and the wise business knows that it is much harder to keep an advantage than it is to get it in the first place. First-mover status must never be a strategy in and of itself, only the prelude to a larger and longer strategic plan.

    Late mover advantage - The competitive advantage held by firms that are late in entering a market. Late movers often imitate the technological advances of other firms or reduce risks by waiting until a new market is established.

    The product plan helps resolve issues related the markets, the types of products and the opportunities that the company will invest in and the resources required to support product development. More specifically, the product plan is used to:
    Â? Define an overall strategy for products to guide selection of development projects;
    Â? Define target markets, customers, competitive strengths, and a competition strategy (e.g., competing head-on or finding a market ...

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