First Mover Theory and Late Mover Theory: A Comparison, Research Paper Example

Companies across the country are consistently being faced with tough decisions regarding business decisions that will launch them forward in a new competitive market.  There are two types of marketing strategies that companies look into when they want to diversify into a different product market.  The first approach is called the “first mover” theory and the second is called the “late mover” theory.  Both of these strategies have strengths and weaknesses that can either solidify or act as a source of detriment to the company’s entry into the market.

The potential advantages of the first mover theory are numerous.  For one, the corporation has the ability to attain exclusive company-product association.  It can also find success through the effects of networking and see a rise in consumption as demand grows.  First mover theory can help the company determine economies of scale and it can also lock the consumers up into the market, creating an exclusive customer base before additional competition enters (Lieberman & Montgomery, 1988).  Several examples of success of this first mover theory are three products by the same manufacturer.  The first was the Apple Ipod, Apple Iphone and Apple Ipad.  Also included in this success story is E-Bay, the first to bring buying and selling into an online auction forum.

There are potentially just as many risks or disadvantages to this theory as well, and they must be taken into consideration before evaluating whether the company can afford to launch.  One fallback is that this method does not always ensure long-term profits as it is just starting out through entry into the market.  Another risk is that competition has time to analyze market trends for the first product and capitalize on its weaknesses to strengthen response to their own product (Lieberman & Montgomery, 1998).  Competitors can also specifically tailor the new product to consumer wants based on demographic surveys.  The biggest risk of all is uncertainty of the market and whether or not the product will even be a success in the first place.  Some examples of companies who suffered at the expense of corporations who capitalized on the late mover theory include Chux Diapers, who were surpassed by Proctor and Gamble’s Pampers.  America Online is another company who fell by the wayside after taking a completely different spin on internet browsing.

Like the first mover theory, there are many advantages of the late-mover theory.  By implementing this strategy, one advantage the company has is the ability to perfect the product before putting it on the market.  The companies can also use demographic surveys to help them develop their products specifically to their audience, which can maximize sales revenue.  In addition, the late mover theory can also use its knowledge of the product to reduce production cost, making it more cost effective for the consumer.  It can market and develop the product to appeal to a wide array of consumers than that for which the original product was designed.  There are a lot of prime examples of companies who have seen success by implementing the late mover theory including Gillette, Facebook, Pampers disposable diapers, and Internet Explorer.  All of these corporations have capitalized on companies who took the initial risk of implementing the first mover theory.

As with anything, there are also potential risks and disadvantages.  Because it is a late-comer into the market, it does not have established brand association.  If proper research into the market is not done, it can also be attempting to capitalize on a dying market base.  A significant risk of late mover theory is creating a product that can potentially alienate customers if added features are superfluous rather than necessary (Carpenter et al., 1998).  Late mover theory can also prove to be detrimental if timing into the market is not done correctly which can cause the product to suffer from the problem of uncertain necessity.  Two dichotomies, Pepsi Cola and Nestle Crunch are examples of both the success and failure of late mover theory.  While they continue to do well on the market, neither Pepsi Cola nor Nestle Crunch has yielded greater shares of market sales than their competitors Coca Cola and Hershey’s Chocolate.

Due to the differences of these alternative theories, it is clear that the late-mover theory is by far the best option for a company looking to enter into a new market.  The largest reason for this determination is that the late-mover theory provides less risk to the company by allowing for greater amounts of research to be placed on the market, target audience and developing a strong product.  Advertising campaigns can be utilized to stress the strengths of the product while also directly or indirectly expressing the weaknesses of the competition.  Despite the fact that late-movers must play catch up in the market and do not have brand recognition, the brand recognition for first-movers is not present either.  Companies using either theory must build a quality product and market its brand in order to appeal to a greater target audience.  By taking the time and using resources to analyze the market and enter the market the right way, companies are in a better fiscal position to compete and will not waste resources.  Companies that are late-movers are able to position themselves accordingly to enter the market with less risk and greater knowledge of the target market than first-movers making it the obvious theory to utilize for market entry.

References

Carpenter, G.S., Krishnamurthi, L., Shankar, V. (February, 1998). Late Mover advantage: how innovative late entrants outsell pioneers. JMR, Journal of Marketing Research. Vol. XXXV. Pg. 54-70.

Lieberman, M.B., & Montgomery, D.B. (1988). First-mover advantages. Strategic Management Journal, 9(1), 41-58.

Lieberman, M.B., & Montgomery, D.B. (1998). First-mover (dis)advantages: retrospective and link with the resource-based view. Strategic Management Journal, 19(12), 1111-1125.