First Mover Theory or Late Mover Theory
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The managers of your company are 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" theory or "late-mover" theory. You have been assigned the task to develop a neat and organized report for this meeting that will give evidence that describes and discusses either supports or disagrees with these theories. You may use the Library or other Web resources to find more information on these terms as well as examples to support your position.
As a new consultant, you really don't know much about the company involved, the potential products that the managers want to discuss in their meeting, nor the personalities of the managers who will be attending the meeting. The very best that you can really do within the given scenario is to thoroughly and factually explore both of these theories in your report as input for their discussion during the remainder of the meeting.
You should provide an unbiased comparison of the two theories.
Identify at least four advantages and four disadvantages for each theory and comprehensively show how each advantage or disadvantage affects the use of that theory (a minimum of 16 pros/cons in all).
Identify at least four examples of real firms who have been successful and four examples of real firms who have been failures using each theory (a minimum of 16 real firms in all).
Provide a definitive and unbiased recommendation of which theory to use. You should provide the specific attributes which constitute the most advantageous context in which the chosen theory operates and justify your recommendation with researched support, logic and examples
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Solution Summary
The solution discusses the First Mover Theory or Late Mover Theory.
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ABSTRACT
While launching a product or service, firms are often faced with a decision with regard to the timing of entry to the market. In this paper we have analyzed two theories - first-mover theory and later-mover theory and discussed advantages and disadvantages of each. We have also taken examples pertaining to each theory where organization faced advantages or disadvantage from is market timing. After analyzing the pros and cons of each we made a recommendation for the company to launch the product as late-mover. This way the company would be able to learn from the shortcomings of the product in the existing market and accordingly modify their strategy.
FIRST OR LATE MOVER THEORY
ADVANTAGES OF USING FIRST-MOVER THEORY
S.No Advantage
1. Technological Leadership
2. Preemption of Scarce Assets
3 Switching costs
4. Buyer choice under uncertainty
➢ Technological Leadership
First -movers can gain technological advantage through (1) advantages derived from the "learning" or "experience" curve where costs fall with cumulative output and (2) success in patent or R&D races, where advances in product or process technology are a function of R&D expenditure.
➢ Preemption of Scarce Assets
The first-mover may be able to get competitive advantage in preemptive acquisition of scarce assets. Which already exist, rather than those created by the firm through technological processes. Such assets may be physical resources or other process inputs.
➢ Switching costs
First-mover advantages may also arise from buyer switching costs. With switching costs, late entrants must invest extra resources to attract customers away from the first-mover firm.
➢ Buyer choice under uncertainty
When buyers have incomplete information regarding product quality, they may rationally stick with the first brand they encounter that performs the job satisfactorily. In such situations, early-mover firms may be able to establish a reputation for quality that can be transferred to additional products through umbrella branding and other tactics
DISADVANTAGES OF USING FIRST-MOVER THEORY
S.No Disadvantages
1. Free-Rider Effects
2. Resolution of Technological or Market Uncertainty
3 Shifts in Technology or Customer Needs
4. Incumbent Inertia
➢ Free-Rider Effects
Late movers may be able to "free ride" on a pioneering firm's investments in a number of areas including R&D, buyer education, and infrastructure development. As we know, imitation costs are lower than innovation costs in most industries.
➢ Resolution of Technological or Market Uncertainty
In many new product markets, uncertainty is involved which is resolved over time through emergence of a commonly accepted design. Early entry is attractive when firms can influence the way that uncertainty is resolved.
➢ Shifts in Technology or Customer Needs
Technological progress can within no time make existing products outdated. First-movers who have already invested in one technology could be ...
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