Does the First Mover Truly Have an Advantage - Assignment Example

 “Does the first mover truly have an advantage?” Introduction The present report is based on analyzing ‘does the first mover truly have an advantage’. First mover advantage is an economic theory focusing on the cost and profit advantage gained or accessed by the first player in the marketplace. The first player here refers to a business firm or organisation. The benefits and profits of the first player are identified in terms of low cost of capital and huge profit margins. The concept of ‘first mover advantage’ also found its roots in the marketing management. The definition of ‘first mover advantage’ which found relevance in the economic field, applies in the similar manner in the marketing field. In this regard, it is considerable significant to identify whether the first mover advantage has the only benefit. The other players have no access on such benefits like cost of capital, high profit margins, etc. First Mover Advantage The first mover advantage is also referred technological leadership in the field of marketing management. The first player holds considerable position and emerges as a significant occupant of the market segment. This advantage step from the fact that first player or business firm access considerable control on the resources in the marketplace. The first player act as a guiding maps and forces other competitors to pursue the direction laid down by the firm. The first mover gains the advantages in both short term and long term. In short term, the firm is benefited in terms of huge profit margins while in the long term they enjoy a monopoly like status (Hill and Jones 30-55). The First mover advantage has also been defined in terms of ability of earning positive economic profits. The economic benefits are identified in terms of excess of cost of capital. This opportunity of earning positive economic benefits is not available to other competing firms. This is due to some kind of asymmetry among the firms. This asymmetry enables one firm to gain or get a head start over rivalry firms. The opportunity of first mover is available as the firm enjoys some unique resources which are not available to other firms. It is believed that this kind of asymmetry allows the firm to gain extra benefits over other firms and take the advantage of existing position (Hoskisson 25-75). Components of First mover advantage The concept of first mover advantage has three primarily three components- technological leadership, control of resources and buyer switching costs. Each component has its own mechanism and affects the first mover advantage in some form or the other. Technological leadership The sustainable leadership in the field of technology allows the firm to gain competitive advantage over others. There are basically two mechanism of technological leadership i.e., benefits derived from the learning or experience curve and successful patent and research and development aspects. This happens as the first or early entrants enjoy the privilege of gaining and understanding the use of technology over other competing firms. This initial understanding of the first player creates barriers for the other players to copy, thus allows first player to enjoy monopoly like status. It has also been found that technological leadership also allows early or first player to learn various ways of reducing cost of product through accumulated experience gained in producing product (Hill and Jones 30-55). This concept is also termed as learning or experience curve effect. The learning or experience curve allow the player to gain in-depth knowledge of the existing conditions. This in-depth knowledge provides the firm with the opportunity of lowering down the production costs in the long term. The benefits of learning curve derive from the falling of production cost on account of cumulative output. The reduction of production costs allows the firm to gain sustainable cost advantage over other rivalry firms. This situation proves beneficial in the long term as it allows them to gain market leadership. The first player cost advantage and enjoys producing product at lower cost until the later entrants learns to produce at lower possible cost (Hoskisson 25-75). Patent and research development aspects are another aspect of technology leadership allowing firm to gain advantage over others. First movers apply and make patents of their invention in order to prevent other players from copying the invention. This practice is most commonly seen in pharmaceutical companies where first mover make the patents of their invention to establish their product as the standardised product and preventing other players to gain customer acceptance enjoyed by them (Hoskisson 25-75). Control of resources This is the second element of first mover advantages. It is ability of the first player to control the resources necessary for running business more efficiently than others. In other words, first player pose the superior ability to gain an access and control the resources better than later entrants. For instance, the first entrant in the restaurant business will gain an access to the best possible location. The best possible location allows the firm to gain attention of mass public and increasing customer acceptance. Wal-Mart has made the best possible use of this advantageous factor by opening the discount stores in small towns and districts. The first entrant also enjoy the advantage of controlling supply of raw materials necessary to produce the product, or enjoying a distinct place in the market place. In this case, the first mover usually increases the production capacity or expands their product line in order to prevent other players to enter the market and gain profits (Hill and Jones 30-55). Buyer switching costs This is the third components allowing the first player to benefits from buyer switching costs. Switching cost is the costs incurred in case customer switch and play one supplier over other. This is due to reason that customers’ specifications and preference are tied with a particular supplier and switching over to other players brings immense cost for the customer. In other words, first entrant or player gains the advantage of shaping and developing customer preferences. This situation proves beneficial for both customer and company. Customer enjoys the benefit of having product of superior or acceptable quality while company is benefited in terms of brand loyalty in long term. It has also seen that satisfied customers tend to avoid the time spend in seeking information about other alternatives and risk of dissatisfaction that may incurred in switching over other products (Hoskisson 25-75). Industry In this section, an industry has been chosen and selected to demonstrate the mechanism of first mover advantages and its impact on the sustainability position of the selected company. Soft drinks and beverage industry has been selected for the purpose of explaining implications of first mover advantages. Coca-cola Company has been elected from the entire portfolio of soft drinks and beverage industry. Description and brief history Coca-Cola is leading carbonated soft drink player operates in more than 200 countries. The soft drink product has been brought by the businessman Asa Griggs Candler in the 19th century. The marketing tactics of the businessman led the product to gain dominance in the soft drink market in the present century (Coca-Cola Company 2012). The company has opened various subsidiaries across the world to gain foothold in soft drinks industry. There were very few players in the soft drinks industry when Coca-Cola has entered the soft drink market. The Coca-Cola takes the maximum possible advantage of being the first player and gained strong foothold in the soft drinks market. Slow Cycle market The soft drinks industry was in the stage of slow cycle market at the time of entrance of Coca-Cola. The slow cycle market is characterized by the prevalence of very few players in the industry. The prevalence of very few players allows the already existing players to enjoy monopoly status and strong brand loyalties for their products and services. There was also absent of inter-firm rivalry at the time of entrance of Coca-Cola in the soft drinks industry. The absent of inter-firm rivalry allowed the Coca-Cola to gain sustainable competitive advantage over rivalry firms and higher customer acceptance (Michael, Ireland and Hoskisson 125). Approach of delivering innovations The new and existing firms adopt different approaches in delivering innovations during short cycle market. The innovations during the slow cycle market have been delivered through partnering with already existing firms or through forming strategic alliances. This is the case with already new firms seeking to gain foothold in the market place. The companies usually undergo partnership or strategic alliances in order to make an easy and quick entry in the new market place. The partnering firm or alliance partner pose better understanding about the conditions and situations of new market place, including customer preferences and needs, and also social, cultural and legal influences. Besides, the alliance partner also has great knowledge and understanding about the supplier and customer behavior of respective market place (Rappaport 135). On the other hand, already existing firms establish and implements its own promotional media platform to deliver innovations during short cycle market. This is due to reason that already existing firms enjoy monopoly like status and considerable dominance in the marketplace. They hold strong brand awareness and customer recognition. Any activity on the part of already existing firms gains immediate attention of mass media and general public. All these aspects eliminate the need of forming tie-ups and partnerships with other players to deliver innovations. The reduced chances of forming tie-ups and partnership with other firms increase the profit margin and faster implementation of innovation strategies. It is evident that Coca-Cola enjoys considerable dominance in the soft drinks market in the initial years. This dominance and popularity allows the company to eliminate the partnering or alliance need with other firms in order to enter new market place. The Coca-Cola holds strong brand image across the world. The brand image of the company is so strong that soft drink product and Coca-Cola are being used as synonymously by the customers. In other words, customers use the word soft drink and Coca-Cola interchangeably in such a manner that they hold similar meaning. The entrance of the Coca-Cola is marked by the presence of very few players. This situation provides the company with the opportunity of earning high profit margins and reduced output cost. The dominance of the company also further intensified the profitability situation (Rappaport 135). The competitive dynamics of the slow cycle market illustrates about the implications of competing rivalry among existing firms. The competitive dynamics at the time of entrance of Coca-Cola in the soft drinks was less complicated and did not pose threat to the sustainable competing advantage to the firm. The competing position of the company was quite sustainable as its product appeared less imitable to the competing firms. The resources and capabilities enjoyed by the Coca-Cola reflect strongly shielded resource position for the company, thus enhanced the competitive position and made the soft drink business of the company as successful business venture. With the passage of time, soft drinks industry has become most attractive and lucrative for other players. The attractiveness of soft drinks industry paved the path of other players to enter in the industry. As a result, large number of players has entered in the soft drinks industry and made the situation vulnerable for all players. The profitability and cost advantages available to the already existing firms are no longer available today. Coca-Cola is no longer exception to it, and thus faces immense threat on its competitive position from other competing players (Rappaport 135). Conclusion Lesson learn from First Mover Advantage A first mover advantage entirely depends on the ability of the firm to show better performance than its competitors and be the first one to capture the new product category in the market. First mover advantage is beneficial for the firm as it improves and enhances the market share and profitability of the company. There is another advantage for the first mover firms that they are able to dominate the product categories for long period of time. Coca Cola is the best example, which demonstrates both value and longevity of the early success in the beverages market. Whether the success comes immediately or slowly to the firm, they have the advantage to make profits in the first entry and which is also a worthwhile investment (Suarez and lanzolla, 2005). First Mover advantage is beneficial in three categories for the firm, such as technological leadership, control of resources, and buyer switching costs. Fist mover companies can easily lead the other companies in the use of technology and afterwards the same technology is copied by the other market players. Early entrants can easily reduce the cost incurred over the production of the products through accumulating the experience. First mover also has the advantage of control of resources, which are important for the business. First mover has the advantage to increase the capacity of its production and they can also broaden their product line. The final category is of buyer switching costs. If the customer finds inconvenience in switching towards the new brand, due to the price of the product, in that case first mover has the advantage. Switching cost covers both cost incurred on adapting new product and penalties related with the breaking of long term contract (Suarez and lanzolla, 2005). The first companies always gains the advantage of offering the product related to the acceptable quality and that company can also easily earn the brand loyalty. The pioneering brand, such as Coca Cola dominates the market for the long period of time. Therefore, brand preferences are very important in the purchase of the products by the businesses. Interplay between first mover advantage and the Competitive Dynamics Coca cola has the strong interplay in the market, when the company entered into the market. The company gains the first mover advantage, because when the firm entered in the market there were very less players; therefore the company was able to launch its products in market and even gain the dominance in the beverage industry. In those times, the situations were even not complicated, as there was no competition. Due to the dominance and first mover image the company was able to build strong brand image in the market. There is a strong interplay between the first mover advantage and competitive dynamics, because the Coca coal was able to capture large part of the market. The company was also successful in achieving the benefit of cost, economy of scale , and acceptance of the customers, which increase the share price of the company and help in attaining the high profitability. Recommendations As the slow cycle market is changing in the standard and fast market that has resulted in the increase in competition. Many new players are entering in the market and have even capture the market, which is the serious threat for Coca Cola. In order to enjoy the market dominance in the present time, Coca Coal should have formulated strategies in slow market that would have help in achieving the sustainable advantage to the firm. In the present time, when the competition is increasing in the market, it is recommended that Coca Cola should add value added features in its products that would increase its capability. It is also recommended that the company should focus over the product attributes and formulate the strategies that lead to capital investment and low cost. Work Cited Hitt, Michael, Ireland, Duane, and Hoskisson, Robert. Strategic Management: Competitiveness and Globalization : Concepts & Cases. UK: Cengage Leraning, 2008. Coca-Cola Company, 2012. Sun. 25 November 2010 < http://www.coca-colacompany.com/topics/heritage> Hoskisson, R.E. Competing for Advantage. UK: Cengage Learning, 2008. Hill, Charles, and Jones, Gareth. Strategic Management Theory: An Integrated Approach. UK: Cengage Learning, 2012. Rappaport, Alfred. Creating Shareholder Value: A Guide For Managers And Investors. US: Simon and Schuster, 1999. Suarez, Fernando, and lanzolla, Gianvito , 2005. “The Half-Truth of First-Mover Advantage”. Harvard Business Review. 25 November 2010 < http://hbr.org/2005/04/the-half-truth-of-first-mover-advantage/ar/1 >   Read More