Furthermore, market control is another benefit that the first mover has. The first mover has the opportunity to gain market control before competitors start entering the market and in that way they are creating a barrier for entry for the latecomers (Chari Narasimha). Amazon.com is a could example since their market control has not been seriously challenged by anyone ever since Amazon.com started their operations (Mellahi, K.; Johnson, M.).
Economies of scale are another possibility where the first mover has an opportunity to get some advantages compared with the competition. When the first mover gets the larger market share, it can decrease marginal cost of production. So, economies of scale can operate as a barrier of entry because new competitors would have to achieve the same scale which would be hard to accomplish. One more thing a first mover can do in order to be the best in the market is switching costs.
A good example is the first Croatian mobile phone operator Cro-net (which last year became T-mobile). Since it was the first one in the market it was hard to convince people to switch to the second operator Vip-net since people didn’t really feel like changing the numbers which they already had been using for a year or so. In order for Vip-net to attract customers they had to offer really cheap deals, which was connected to huge costs for them (Mrazovac, D.).
First movers also use Channel control where they create a barrier by using distribution channels which are strictly controlled. Especially if the number of those channels is limited it becomes hard for the competition to make use of those channels. Control of scarce assets is another benefit for by first movers. Those resources can be natural resources, it can be land etc. The only problem the first mover can face is that it is only for a short period of time, that they manage to have total control of those assets. However in most case even that is enough the gain a sustainable advantage over the latecomers. Nevertheless in some industries, like diamond industry where De Beers created a continuous advantage, it is possible to sustain continuous control over scarce resources (Chari Narasimha).
Those listed above are the main advantages for first movers. In addition there are several other advantages the first movers can count on in the early phase of market entry. Capital requirements can be barriers to entry because some industries demand large capital investments so smaller companies are often not able to fulfill a requirement needed to enter the market. This is especially true if they have to compete against a first mover who has already grabbed the market control. Things like differentiated products or patents also present a barrier for a competition due to impossibility to compete with the companies which have acquired that.
Last but not least, government regulations can also be barriers when certain governments have a deal with a first mover company, where they (governments) protect first movers from the competition. This becomes very visible when entering the market of a transitional economy where a whole variety of deals are possible (Chari Narasimha). Conclusion First mover advantages exist for both cases – first movers within an industry as well as first movers in a market. However it is not enough to count on those advantages! Setting clear objectives, defining a strategy as well as long term commitment are essential for long term success (Yadong, L; Peng M.W). The advantages which can be gained from making the first move should therefore not be taken as a guarantee for success but rather as an additional incentive to be the first mover.
TOYOTA’S FIRST-MOVER OFFENSIVE IN CUSTOM-BUILT CARS
In fall 1999 Toyota Motor Company announced that it would begin a program to allow U.S. car shoppers to order custom-equipped vehicles for delivery within five days. The move was seen as an attempt to shift from a “build-for-dealer-inventory” business model, which was already relatively common in Japan and Europe. But the move was further interpreted as a shrewd strategic initiative by Toyota to gain competitive advantage by being the first North American manufacturer to make this transition.
Surveys of car buyers indicated that close to 50 percent were unable to find the model, color, or equipment configuration they preferred when shopping dealer lots. Traditionally, dealers made educated guesses as to what model, color, and equipment options buyers would prefer, placed their orders with manufacturers, and hoped that car buyers would find what they wanted from the array of vehicles they had in stock. To induce customers to compromise if what they wanted was not in stock, manufacturers offered rebates and dealers would make price concessions. Custom-ordered vehicles could be obtained, but delivery times often ranged from 30 to 60 days.
Toyota’s competitive move to five-day delivery on custom orders was intended not only to better satisfy car buyers and encourage brand loyalty but also gain the benefits of tighter supply chain management and reduce reliance on costly promotions to push sales of slow-selling models. A build-to-order business model (similar to that used by Dell, Gateway, and other PC makers) permitted tighter just-in-time delivery of parts and components to Toyota assembly plants, plus a reduced need for profit-eroding rebates and discounts on unpopular models and configurations.
It also paved the way for dealers to drastically cut the number of vehicles kept in stock (thus driving down their inventory-financing costs). If the built-to-order approach caught on with car buyers, a dealer would only have to stock a minimal number of showroom models for inspection and test drives, a limited number of vehicles for immediate delivery, and function mainly as a pickup point for custom orders. Investing in acres of real estate at visible, high-traffic locations would be less necessary.
A built-to-order model would also work to the advantage of Internet car-buying services, since it would be easy for car shoppers to do their research online, make price comparisons, and place their orders. From Toyota’s perspective, the issue was whether its first-mover offensive would provide a lasting competitive advantage. Would buyers respond in attractive numbers? Would Toyota realize significant cost-savings and gain a valuable cost advantage over rivals? How long would it take for rival manufacturers to develop the capability to match Toyota’s five-day delivery, build-to-order option?
1. Michael E. Porter “Competitive Strategy”
2. Philip Kotler “Marketing Management”
3. Arthur A. Thompson, Jr., a. J. Strickland III “Strategic Management concepts and Cases”
4. Mrazovac Davor: “Problemi za VIP”, Jutarnji List