How a Firm Can Enjoy Such Benefit as First Movers?

It has been widely recognized that time to enter a market can have impacts on the performance (Frynas, Mellahi, & Pigman, 2006).It means that the different time entry to a market will provide the different benefits that can produce the different performance. A firm that goes into a market earlier than other firms will enjoy the different benefits than later firms. Therefore, time entry is always taken into account when a firm wants to launch its product.

Empirically, there were a lot of studies supporting that “first movers” can enjoy advantages rather than “later movers” (Carpenter & Nakamoto 1989, Golder and Tellis 1993, Lieberman and Montgomery 1988, VanderWerf& Mahon, 1997). In addition, Frynas, Mellahi, and Pigman (2006) proposed that “ the idea of an FMA suggests that pioneering businesses are able to obtain positive economic profits as the consequence of early market entry, that means, profits in excess of the cost of capital” (p.322). Those evidences indicate that time to enter the market is also important for firms so as to enjoy positive rents from such markets. However, the next question is how a firm can enjoy such benefit as first movers?

According to Kerin, Varadarajan, and Peterson (1992), there are fours mechanism that can explain how a firm can benefit as the first mover. Firstly is economic factors, the second is preemption factors, the third is technological factors, and the fourth is behavioral factors. Economic factors are about cost advantages in term of scale and experience economies and marketing cost asymmetries. Scale and experience economies provide benefits in term of lowering cost compared to later firms. Therefore, it can also provide barriers to enter a market whereas marketing cost asymmetries indicate that first mover will enjoy benefit in term of lowering cost for advertising its product since customers are more aware of and have more preference to first mover’s products than later movers’ products.

Preemption factors are factors that provide absolute cost advantages and differentiation advantages. The absolute cost advantages are gained from the lower price of material as first movers can firstly make contract with the lower price compared to later entrants. The differentiation advantages are achieved from cost asymmetries in factor inputs and special preemption.The cost asymmetries in factor inputs indicate that first movers can get materials in the lower price than later entrants because first movers can make a contract that ensure first movers to get materials in the low price than later entrants. The special preemption will lead first mover to have a better location than later entrants.

Product factors explain that firms can gain differentiation advantage through products, process and organizational innovation. In this part, technology processes can help first movers enhance the product performance and also create the switching cost. Those are sources of differentiation advantages. Finally, behavioral factors can produce advantages through switching costs and product-specific reputation advantages.Switching cost in term of contractual and nocontractual switching cost can maintain the long relationship between buyers and sellers and also can provide a barrier for late entrants to enjoy the benefit in the market.Product-specific reputation advantages can provide benefits to first mover through establishing perceptual structure earlier than late entrants so that customers are willing to choose the first mover products since they are familiar with those products.

References

Carpenter, G. S. & Nakamoto, K. (1989). Consumer preference formation and pioneering advantages, Journal of Marketing Research, 26: 285-298.

Frynas, J., Mellahi, G.K., & Pigman, G.A. (2006) First Mover Advantages in International Business and Firm-Specific Political Resources, Strategic Management Journal 27:321-345.

Golder, P. N. &. Tellis, G.J. (1993). Pioneer advantage: Marketing logic or marketing legend? Journal of Marketing Research, 30(1):58-170.

Kerin, R.A., Varadarajan, P.R. & Peterson, R.A. (1992). First-Mover Advantage: A synthesis, conceptual framework, and research propositions, Journal of Marketing, 56: 33-52.

Lieberman, M. B. and Montgomery, D.B. (1988). First-Mover Advantages, Strategic Management Journal, 9: 41-58.

VanderWerf, P.A., & Mahon, J.F. (1997). Meta-Analysis of the Impact of Research Methods on Findings of First-Mover Advantage, Management Science, 43(11):1510-1519.