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Entry Timing (First mover Advantages)

Entry Timing (First mover Advantages). Agenda. Timing of Entry Demand and technology uncertainty First and Second mover advantages. Innovation and uncertainty. Technological uncertainty Uncertainty regarding the technological features of the product Standards Dominant design

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Entry Timing (First mover Advantages)

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  1. Entry Timing(First mover Advantages)

  2. Agenda • Timing of Entry • Demand and technology uncertainty • First and Second mover advantages

  3. Innovation and uncertainty • Technological uncertainty • Uncertainty regarding the technological features of the product • Standards • Dominant design • Market/Demand uncertainty • Uncertainty regarding the size and growth rates of the markets for new products • Potential uses • Substitute products • Complementary products

  4. Back to Takeoff timings Firms Sales

  5. time Invention Commercialization Firm Take-Off Sales Take-Off Resolution of Technology and Demand Uncertainty Technological Uncertainty Resolved Demand Uncertainty Resolved

  6. time Invention Commercialization Firm Take-Off Sales Take-Off ? ? ? When should firms enter?

  7. In-Class Activity Synthes Case Discussion

  8. When to enter • Importance of lead time (the degree to which innovation can be protected) • The nature of risk and the ability of the firm to manage it • The importance and availability of complementary resources • The potential to establish a standard

  9. First mover Advantage (?) • A first mover is a firm that takes an initial competitive action. • Advantages of first movers • If successful, the firm earns above-average returns until other competitors are able to respond effectively. • Develop customer loyalty. • Harley-Davidson has been able to maintain a competitive lead in large motorcycles due to intense customer loyalty. • Disadvantages of first movers • High risk • High development costs • High demand uncertainty

  10. Second mover Advantage (?) • A second mover is a firm that responds to a first mover’s competitive action often through imitation or a move designed to counter the effects of the initial action. • BankOne (Internet banking); New Balance (athletic shoe industry) • Advantages of second movers • Reduction in demand uncertainty • Market research to improve satisfying customer needs • Learn from the first mover’s successes and shortcomings • Gaining time for R&D to develop a superior product • Disadvantages of second movers • Loss of opportunity to establish brand loyalty • If significant learning curve through moving first, then giving up competitive advantage

  11. Advantages Above-average returns until other competitors respond effectively Start down the learning curve earlier Opportunity to gain customer loyalty Opportunity to set standards Disadvantages Uncertainty about demand High development costs Risk of adopting a losing standard (Beta/VHS) When to enter a market: First mover (dis)advantage

  12. Advantages Reduction in demand uncertainty Market research to improve satisfying customer needs Learn from the first mover’s successes and shortcomings Gaining time for R&D to develop a superior product Don’t have to educate consumers Disadvantages Switching costs may make taking customers difficult Brand loyalty/customer familiarity Standards Initial cost disadvantage: May not survive until learning curve advantages have leveled out Moving Second: Imitate and counter

  13. Success of leaders and followers PRODUCT INNOVATOR FOLLOWER WINNER Jet Airliners De Havilland (Comet) Boeing (707) Follower Float glass Pilkington Corning Leader X-Ray Scanner EMI General Electric Follower Office P.C. Xerox IBM Follower VCRs Ampex/Sony Matsushita Follower Diet Cola R.C. Cola Coca Cola Follower Instant Cameras Polaroid Kodak Leader Pocket Calculator Bowmar Texas Instruments Follower Microwave Oven Raytheon Samsung Follower Plain Paper Copiers Xerox Canon Not clear Fiber Optic Cable Corning many companies Leader Video Games Players Atari Nintendo/Sega/Sony Followers Disposable Diapers Proctor & Gamble Kimberly-Clark Leader Web browser Netscape Microsoft Follower PDA Psion, Apple Palm Follower MP3 music players Diamond Multimedia Sony (&others) Followers

  14. Key Take-aways • Timing of Entry • Comparing first and second mover advantages • Demand and technological uncertainty is key to decision making • Entering early may give better potential to set standards in industry

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