What is a First Mover
A first mover is a service or product that gains advantage by being the first to market. Being first typically enables a company to establish strong brand recognition and customer loyalty before competitors enter the arena. Other advantages include additional time to perfect its product or service and setting the market price for the new item.
BREAKING DOWN First Mover
First movers in an industry are almost always followed by competitors that attempt to capitalize on the first mover's success and gain market share. Most often, the first mover has established sufficient market share and a solid enough customer base that it maintains the majority of the market.
Examples of businesses that obtained a first mover advantage include innovators such as Amazon and eBay. Amazon created the first online bookstore, which was immensely successful. By the time other retailers established an online bookstore presence, Amazon had achieved significant brand name recognition and parlayed its first-mover advantage into marketing a range of additional, unrelated products. eBay built the first meaningful online auction site in 1995.
First Mover Advantages
The first mover advantage is not usually a single advantage, but rather a set of advantages, which a company obtains by being the first to develop and market a product. Being first enables a company to obtain many prime advantages that strengthen its position in the marketplace. For example, a first mover often gains exclusive agreements with suppliers, sets industry standards, and develops strong relationships with retailers.
- 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. It also positions companies to diversify offerings and services. Name recognition is the main first-mover advantage. Examples of dominant brand name recognition of a first mover include soft drink colossus Coca-Cola, auto-additive giant STP, and boxed-cereal titan Kellogg's.
- Economies of scale, particularly those regarding manufacturing or technology-based products, is a massive advantage for first movers. The first mover in an industry has a longer learning curve, which frequently enables it to establish more cost-efficient means of producing or delivering a product before it must compete with other businesses.
- Switching costs allows the first mover to build a strong business foundation. Once a customer has purchased the first mover's product, switching to a rival product may be cost prohibitive. For example, a company using Windows operating systems is unlikely to change to another operating system, because of the costs associated with retraining employees.
First Mover Disadvantages
Despite the many advantages associated with being a first mover, there are disadvantages. Other businesses can copy and improve upon first movers' products, thereby capturing first movers' share of the market. Also, often in the race to be the first out of the gate, a company may forsake key product features to expedite production. If the market responds unfavorably, later entrants capitalize on first movers' failures to produce a product that aligns with consumer interests. The costs to create vs. the costs to imitate are significantly disproportionate. To replicate a product costs approximately 60-75% less than it cost for the new product's creation.