First Mover

What is a 'First Mover'

First mover is a term that describes a certain competitive advantage a business obtains by virtue of being the first to bring a specific product or service to market. Among other things, being first typically enables a company to establish strong brand recognition and customer loyalty before other entrants to the market arise. Another advantage is the additional time a first mover business has to perfect or improve its product or service.

BREAKING DOWN 'First Mover'

Examples of businesses that obtained a first mover advantage include innovators such as Amazon.com and eBay. Amazon.com created the first online bookstore and was immensely successful. By the time other retailers established an online bookstore presence, Amazon.com had already achieved significant brand name recognition, and parlayed its first mover advantage into marketing a range of other products besides books. eBay established the first major online auction site in 1995. Other auction websites have followed, but none have anything close to the brand recognition of eBay.

First movers in an industry are almost always followed by competitors that attempt to capitalize on the first mover's success and gain a share of the market for themselves. However, it is often the case that the first mover has established sufficient market share, customer loyalty and other advantages to enable it to maintain the lion's share of the market.

Elements of First Mover Advantage

The first mover advantage is not usually a single advantage but rather a set of advantages that a company obtains by being first to develop and market a product.

Brand name recognition is one of the main first mover advantages. Examples of extremely strong brand name recognition established by first movers can be seen in the history of companies such as The Coca-Cola Company, auto-additive giant STP and boxed-cereal producer Kellogg's. Brand name recognition not only engenders loyalty among existing customers but also draws new customers to a company's product even after other companies have entered the market.

Economies of scale represent another first mover advantage. This is particularly true in regard to manufacturing or technology-based products. The first mover in an industry has a longer learning curve that frequently enables it to establish more cost-efficient means of producing or delivering a product.

Switching costs is another common first mover advantage. Once the first mover sells its product to a customer, the costs of switching to a rival product may be considered prohibitive by the customer. For example, a large company that uses computers with the Windows operating system is unlikely to change over to another operating system because of the cost required to retrain its employees in using the new system.

Being first enables a company to obtain a number of prime advantages that strengthen its position in the marketplace. A first mover often has the opportunity to lock in relationships with suppliers, leaving few necessary resources for potential rivals. First movers also have first choice in things such as location, website names and key personnel.

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