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First Mover Advantage

Updated on March 21, 2024
Article byKosha Mehta
Edited byKosha Mehta
Reviewed byDheeraj Vaidya, CFA, FRM

What Is A First Mover Advantage?

The term “first mover advantage” refers to a competitive edge that may be garnered by a business that is the first to market a new product or service. A business may gain substantial brand recognition and customer loyalty to its products or services by being the first to enter a market.

Firsst Mover Advantage.

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The term “first-mover advantage” can only be used for a major corporation that enters a market first. This gives the business a significant edge over any subsequent competitors, and a company in an industry can reach a very significant scale.

Key Takeaways

  • First mover advantage means the first occupant of a critical position or niche has resources and capabilities that rivals lack.
  • Competitors may leverage the first mover’s experiences to enhance their products and services, making it simpler to acquire a larger portion of the market.
  • In most cases, early adopters successfully build high brand awareness and a loyal consumer base.
  • One of the benefits of being a first mover is that you have more time to build economies of scale —methods of manufacturing or distributing a product that is more productive while using fewer resources.

First Mover Advantage In Business Explained

In the business world, the concept of first-mover advantage refers to the idea that the first firm to join a certain market can secure a disproportionately large market share compared to companies that enter the market later.

Because first movers in a market make judgments with limited information on customers’ requirements, joining the marketplace as a first mover may be both dangerous and beneficial.

First mover advantage meaning when a company is the first to provide a product or service to the market, it has the edge over its competitors. This type of business is called a “first mover.” When a firm is the first to enter a market, it often can strengthen its brand awareness and cultivate consumer loyalty before its rivals appear in the market. Added benefits include having more time to improve its good or service and determining the appropriate price point for the market for the new product.

First movers in a sector are nearly always followed by competitors who strive to capitalize on the success of the first movers and obtain market share. However, in most cases, the company that was the first to enter a market has amassed a sizeable enough share of that industry and a reliable enough client base that it continues to control the bulk of that market.

Companies that are the first to market have what is known as the first-mover advantage. It provides them with a competitive edge over other businesses, resources, or innovations that come after them. Market leadership and customer retention are benefits of early adoption, but these companies must continue to innovate to avoid falling behind their rivals.

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First Mover And Competitors

First movers also have the power to grab the attention and mindshare of consumers as well as the loyalty of brands before competitors emerge. The first company in a new industry almost always becomes the industry leader. On the other hand, subsequent rivals provide alternative products or services inside an established industry. It is common for a sector’s pioneer leader to prescribe how subsequent rivals would join the market.

Having the benefit of being the first mover in your sector may position you as a market leader in terms of cost, modern tech, and collaborative learning. And intellectual property rights, such as patents and copyrights, may ensure that future rivals cannot replicate these first mover advantage benefits.

Examples

Let us look at first-mover advantage examples to understand the concept better.

Example #1

In 1895, King C. Gillette gave the concept of a safety razor having blades that could be thrown away after use. It took six years to create and apply for the first disposable razor and blade patent. The firm sold less than three hundred blades and razors in the first year, but that number skyrocketed to more than two hundred thousand in the next year.

However, until 1921, when Gillette launched an upgraded version of its previous product owing to the patent’s expiration on its first design, it remained a costly product for the general public. After that, it reduced the price of the older razor from $5 to $1 while maintaining the original price of the updated razor at $5. Such a price drop led to a significant increase in customers who purchased products bearing the Gillette brand. This event is the basis of the “razor and blade approach,” where razors are on sale at low prices and blades at a much higher price.

Gillette earned the perks as a First Mover in the sector; if it moved second: it immediately produced identical versions, patented with quickness, and launched in regions quicker than its competitors could.

Example #2

An article by Forbes explains how Apple encashes its first mover advantage by introducing an element of safety in the iPhone. Apple’s focus on providing security as a service for the iPhone and Apple Watch is another overarching theme or shift in the company’s thinking. Apple has the benefit of being a pioneer in this new strategic direction. With its latest satellite connection to iPhones and its ability to follow automobile accidents, Apple is shifting its marketing message to “Apple also has your back” about its commitment to its customers’ safety.

Health, safety, and privacy are just some of the intangibles that Apple is continuing to focus on, making its products increasingly desirable.

The new picture stabilization function in the iPhone 14 Pro is another important update that has not earned as much attention as it deserves. It has a gimbal function to steady films in real-time regardless of how fast you move. Another huge deal, this one eliminates the need for a separate gimbal in almost all situations.

First Mover Advantage vs Second Mover Advantage

The term “second-mover advantage” refers to the situation in which a company that follows the lead of another company that was the first to enter the market can grab a bigger market share, although entering the market later. First-mover companies frequently have to deal with significant expenditures associated with research and development and the marketing costs required to educate consumers about a new category of goods.

The second-mover advantage is a firm’s competitive benefit when it hits the marketplace later than other firms. A second-mover can gain an advantage over a first-mover by targeting its already-established client base and implementing marketing methods that have already been successful.

Pros And Cons

Like every concept, the first mover has some benefits and disadvantages; let us take a look.

Pros:

  • It enables the firm to identify the most reliable retailers and wholesalers, being a first in the space, and it becomes the basis for a long-term relationship.
  • Since other firms look up to the first mover owing to its experience and customer base, it has the authority to determine how the industry should operate.
  • First mover firms get recognizance of the brand faster. It encourages existing consumers to remain loyal and assists with acquiring new customers and expanding product lines.
  • First, Movers benefit from economies of scale, which means they can manufacture products more efficiently financially.
  • Customers that buy from first movers are less likely to shift to other businesses due to the switching costs.

Cons:

  • Even if a company is a pioneer in its field, that does not automatically ensure a competitive advantage.
  • The first company to market a new product might have to spend a lot of money to convince customers to try it. However, those that came later in the market would get an advantage from these well-informed purchasers and would not have to spend as much money trying to educate customers.
  • Those who come in later can learn from the errors made by the early adopter.
  • Late entrants might capitalize on the situation if the first mover fails to win customers over with the things they provide.
  • These late entrants can reverse-engineer new items and improve or lower their prices.
  • Later entrants can discover areas where the first mover left room for development and capitalize on those areas.

Frequently Asked Questions (FAQs)

1. what is a first-mover advantage?

The term “first-mover advantage” refers to a competitive edge that may be garnered by a business that is the first to market a new product or service. In addition, it refers to the capacity of a company to do better financially than its rivals as a direct result of the company being the first in the marketplace in a new product area.

2. First-mover advantages and disadvantages?

First movers have more time to create economies of scale, which are more cost-effective means of producing or distributing a product. This gives them a competitive edge. However, the danger that one’s products may be imitated or improved upon by one’s rivals is one of the drawbacks of being a first mover.

3. Is health care as an industry compatible with first-mover advantage?

Most healthcare organizations implementing the first-mover benefit have a greater growth rate, which can be deduced from an analysis of the situation. First and foremost, health services are regarded as the pioneers of technology. This is particularly true because these centers upgraded medical care facilities and forward-thinking technologies.

This article is a guide to What is First Mover Advantage & its meaning. We explain it with examples, pros & cons, & differences from second mover advantage. You can also go through our recommended articles on corporate finance –

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