First mover Last mover theory and explanation of both.
As an introduction, it is necessary to introduce both the first mover theory and last mover theory in an effort to define and clarify what each theory represents. Essentially, the first mover theory defines entry into the market with a new product prior to any competition's entry; becoming the first company to market or develop a product. This theory (being first) has long been thought of as being the only way to "win". With the onslaught of the computer age and internet, the first mover theory is a predominant method of success, and has created countless millionaires. "The internet phenomenon of late has instigated a fresh surge of interest in the first mover advantage theory and offers proof of its continued relevance today" (Fahy, 2006). The second, late mover theory's premise is to enter the market with a product (or similar product) after a competitor has introduced the product to the mainstream marketplace. The thought process behind this theory is that by waiting a company can collect data and get a feel for the marketplace based on a competitor's success or failure with the product. The hope in this theory is in releasing an improved product based on this information thus creating a superior product addressing and correcting any problems with the company that followed the first mover theory.
Both the first mover theory and the last mover theory have their advantages and disadvantages. It all basically boils down to the product, market research, and solid innovation. Either theory can be wrong, just the same as any theory can be correct. The following will address the pros and cons of each. The predominant ideas that must be entertained prior to deciding on any of these theories must be considered. First, a company must evaluate the potential of the product and its ability to establish certain standards. Second, a company must thoroughly examine the amount and type of risk in the product and ascertain the firm's ability to manage the risk. Third, a company must ascertain the availability of extra/complementary resources and the importance these will be to the company. Finally, an important factor for the developing company must lead time. This is best described as the company's resources available to protect their innovation.
There are distinct advantages to the first mover theory. The primary advantage is that the company is taking the first initial action for a product in a competitive market. If the venture is a success, the company will be turning high profits in an untapped market prior to the response of competitors to get a piece of the pie. A successful venture such as this can also, most importantly, create a customer loyalty base. This can prove to be vital in retaining a customer base even in the face of competitors entering the marketplace with a competitive product. These first mover theory ventures also have the opportunity to earn substantially higher profits than is the norm for new products introduced in the marketplace. The ability to corner an untapped market share coupled with the absence of competitors allow for a successful or revolutionary product to enjoy domination in the marketplace.
Although the advantages seem to suggest that first movers rule the industry, there are certain disadvantages that can arise within the first mover theory. According to Gal-or, 1984 examples of this are "when an entrant undercuts the price of the incumbent...or when the follower in the development phase invests more than the leader and is consequently more likely to collect a patent in a research and development game." A first mover company also has the disadvantage of ...
When companies are deciding to introduce a new product, part of a product strategy for development must entertain the first mover vs. last mover theory. These two theories remain a hot debate as there a good and bad points for each. The question must be determined based on the product and the great many details concerning the product. Success has been achieved via utilization of the first mover theory as well as the last mover (2nd mover) theory.