Transcript Timing of Entry
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 Market/Demand uncertainty Uncertainty regarding the size and growth rates of the markets for new products Potential uses Substitute products Complementary products
Back to Takeoff timings
Automobile
1 0.8
0.6
0.4
0.2
0 0
Firms Sales
10 20
Years Since Commercialization
30
Resolution of Technology and Demand Uncertainty
Technological Uncertainty Resolved Demand Uncertainty Resolved
Invention Commercialization Firm Take-Off Sales Take-Off
time
When should firms enter?
Invention
?
Commercialization Firm Take-Off
?
Sales Take-Off
?
time
In-Class Activity
Synthes Case Discussion
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
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
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
When to enter a market: First mover (dis)advantage
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)
Moving Second: Imitate and counter
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
Success of leaders and followers
PRODUCT Jet Airliners Float glass X-Ray Scanner Office P.C.
VCRs Diet Cola Instant Cameras Pocket Calculator Microwave Oven Plain Paper Copiers Fiber Optic Cable Video Games Players Disposable Diapers Web browser PDA MP3 music players INNOVATOR De Havilland (Comet) Pilkington EMI Xerox Ampex/Sony R.C. Cola Polaroid Bowmar Raytheon Xerox Corning Atari Proctor & Gamble Netscape Psion, Apple Diamond Multimedia FOLLOWER Boeing (707) Corning General Electric IBM Matsushita Coca Cola Kodak Texas Instruments Samsung Canon many companies Nintendo/Sega/Sony Kimberly-Clark Microsoft Palm Sony (&others) WINNER Follower Leader Follower Follower Follower Follower Leader Follower Follower Not clear Leader Followers Leader Follower Follower Followers
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