3 Things to Know About the ‘First Mover Advantage’
The First Mover Advantage (FMA) is the advantage that the "first-moving" occupant of a market segment gains.
Here's everything you need to know about what the marketing term really means and how it can be helpful (and hurtful) to be the first mover in your industry. After all, there are tons of pros and cons to being the first mover.
1. What is the first-mover advantage?
The first-mover advantage refers to the benefits with which a company or entrepreneur in a market segment is rewarded for being the first to tap into it.
More specifically, "a first mover is a service or product that gains a competitive advantage by being the first to market with a product or service," according to Investopedia. "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. 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."
In Laymen's terms: The early bird gets the worm.
It's important to note, however, that a first mover doesn't necessarily mean the very first company to come up with a product or service. Rather, it's the first company to really hit the market running.
"While Coke wasn’t the first soda to hit the market, it was the biggest," according to Hubspot. "Vernors and Dr. Pepper actually debuted earlier, but a first-mover advantage doesn’t necessarily mean the first company to launch has the advantage. Rather, it refers to the first company to capture large market share. The first soda syrups started showing up around 1881. But when Coca-Cola debuted in 1886, they immediately became the consumer favorite. By the time Pepsi launched, in 1898, Coke was already selling a million gallons per year."
2. What are some examples of first movers?
Three examples of first movers include Amazon, eBay and Apple.
Amazon created the very first online bookstore, and it was an immediate success. It had already gotten brand recognition, a seriously sustainable competitive advantage, before other retailers started opening online bookstores, too. In fact, Amazon did so well that, according to Forbes's "The World's Most Innovative Companies" 2018 ranking, it ranked fifth. The company has an annual growth rate of 30.8%, pulling in annual sales of $193.2 billion.
Meanwhile, eBay was the world's very first auction site, and it continues to be successful for regular shoppers, too. The company totaled $263 million thanks to 179 million customers visiting the site by the second quarter in 2018, according to Investopedia.
Apple came up with the first iPhone in 2007. And, when it did, it changed the mobile phone landscape forever. Android and other brands soon followed suit, but Apple already had a name for itself. In fact, a recent Consumer Intelligence Research Partners report suggests that Applies iOS loyalty rate tops out at 88%.
There are also successful companies that were not first movers. Instead, they learned from first movers and became successful because of what they learned.
Before Google, for example, there were tons of other search engines like Infoseek and Yahoo. Google innovated to create a more seamless user experience that worked effectively and efficiently, however, and now it controls the bulk of search activity.
Starbucks is another company that was no the first in its game. There were tons of places to get coffee before Starbucks, but Starbucks ultimately built a strong brand, innovating on what other coffeemakers were doing. And now it's a major name in the coffee world.
3. What are the advantages and disadvantages of being the first mover?
There are both advantages and disadvantages, of course, to being a first mover.
Advantages
Here are some of the advantages:
- First movers can make lasting impressions on their customers since they're the first to introduce a product or service
- First movers can gain exclusive agreements with suppliers before competitors
- First movers can set industry standards
- First movers can develop strong relationships with retailers before competitors
- First movers can develop brand recognition and brand loyalty before anyone else
- First movers have more time to refine their services or products to perfect them for customers
- First movers can control resources like exclusive contracts with key suppliers, talent, strategic location, etc.
- First movers have the sustainable competitive advantage of retaining customers and clients first, and it'd take more effort and potentially cost more for customers and clients to switch brands down the line
Disadvantages
There are also some disadvantages to being a first mover, however. Here are some of the disadvantages:
- First movers have to be the guinea pigs for a new product or service, and, if it doesn't sell, they can ruin their brand name
- First movers take on the economic burden of developing a whole new market
- First movers don't have anyone to learn from, while others learn from their mistakes to reduce risk and avoid costly errors
- First movers use whatever technology they have on hand, while those that follow can learn from first movers and innovate to use newer and better technologies
- First movers may introduce services or products before the market is ready, paving the way for competitors but missing the ball themselves
"Other businesses can copy and improve upon a first mover's products, thereby capturing the first mover's share of the market," according to Investopedia. "Also, often in the race to be the first to market, a company may forsake key product features to expedite production. If the market responds unfavorably, then later entrants could capitalize on the first mover's failure to produce a product that aligns with consumer interests; and the cost to create versus the cost to imitate is significantly disproportionate."
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AnnaMarie Houlis is a feminist, a freelance journalist and an adventure aficionado with an affinity for impulsive solo travel. She spends her days writing about women’s empowerment from around the world. You can follow her work on her blog, HerReport.org, and follow her journeys on Instagram @her_report, Twitter @herreport and Facebook.
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