Compare two marketing theories: First-mover & Late-Mover

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Decision Between First-Mover Theory and Late-Mover Theory

ABSTRACT

This paper contrasts "first-mover theory" vs. "late-mover theory". This paper will detail and explain the advantages and disadvantages of both concepts along with examples of companies who succeeded and those that failed at both. After you read the analysis within this paper, my findings and recommendations will be at the end of this document.

INTRODUCTION

Would following the first-mover theory be the more effective way to build a new business or would just creating a new version with the late-mover theory be a more economical way to build a new business? The choice needs to be made and this paper will address that aspect.

This paper is to present research analysis about "first-mover theory" vs. "late-mover theory" in order for management to make an intelligent decision as to whether the company should 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. The first-mover has the advantage to capture market share more easily without having to worry about a competitor trying to do the same thing with the same product. The first-mover embarks on an action or strategy that will lead to better performance and profit. First-movers are pioneers in the area of business which include not only new products and new technology, but also new advertising designs.

FIRST OR LATE-MOVER THEORY

First Table-advantages of being a first-mover

Advantages of First-Mover Theory
- Ability to command premium pricing as no substitute is available
- Capture a higher market
- Establish benchmarks
- Network effects
- Ability to select the best distribution channel
- Acquisition of resources
- Establish switching costs for buyers to move to other brands, make life difficult for late movers.

Complete Explanations
- The first-mover has the ability to command pricing because there is no available substitute in the marketplace. Consumers are willing to pay a premium for products that haven't been out on the market.
- First-movers can capture greater market share since they are new.
- They establish benchmarks because there are none from before.
- Network effects apply to industries where the value of a good or service increases with the number of users. A first-mover's advantage can increase exponentially if he is able to effectively dominate a network early on (Lieberman and Montgomery, 1987)
- Acquisition of resources in the competitive market where there are scarce resources, a first-mover can benefit from acquiring the resources and assets first before their competitors (Lieberman and Montgomery, 1987).
- Consumer switching cost is beneficial if first-mover effectively captures the consumers early on (Lieberman and Montgomery, 1987).

Second Table- disadvantages of being first-mover

Disadvantages of the First-Mover Theory:
- High risk
- Free-rider effects
- Resolution of uncertainty
- First-mover inertia
- Consumer preference not available
- Market dynamics not available
- Great deal of risk introducing new products in the marketplace

Complete Explanations
- High risk if the first major disadvantage because information on trends, market dynamics, and what consumers will buy are not available for the first-mover.
- Free-rider effects have to do with the absence of patent protection because their product is newly designed.
- Resolution of uncertainty when a product or service is new. No one is sure how the product will be used and what it is about the product that consumers will find useful.
- First-move inertia happens when the consumer wants changes made and this happens. The first mover is not able to make the changes when the consumer wishes them done. Most times, consumers will then go with what was working before.
- Consumer preference is not available on new products so the first-mover is at a disadvantage as to how good this new product will be.
- Market dynamics are also not available so the same holds true that there is no marketing information to analyze the trends in consumer buying.
- In this economy, there is a tremendous risk in introducing a new product into the marketplace. All the money that would be invested to create a brand new product only to have it fail would be bad.

Third Table- successes using the first-mover theory

Successes Using the First-Mover ...