Is there a real pioneers advantage? Lessons learned after almost thirty years of research.

Author:Gomez-Villanueva, Jorge Eduardo
Position:Report - Statistical data - Abstract
 
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INTRODUCTION

Previous research has shown that early entry of companies into new markets promotes competitive advantages or influences benefits exceeding the cost of the capital required when compared to competitors who have entered later (Lieberman and Montgomery, 1988). This concept has been called: pioneer's advantage (Robinson and Fornell, 1985), first-mover advantage (Lieberman and Montgomery, 1988) and order of market entry effect (Lambkin, 1988).

The theoretical foundation for this idea comes from the economics of industrial organization, specifically the concept of entry barriers (Porter, 1980), where one of the forces of the Competition Model refers to the threat of new entrants. The likelihood of a firm entering an industry is a combination of two factors: barriers to entry and the retaliation expected from industry participants.

Since the seminal studies on the subject were undertaken, advantages associated with economies of scale or learning curves for the pioneers in the market have been found (Glazer, 1985). For Robinson and Fornell (1985) and Robinson (1988), there are pioneers who have maintained successful market leadership for decades, like Campbell, Coca-Cola, Dupont, and Kleenex. However, they also identify pioneers who have not had the success expected, such as Advent (large-screen TVs), Royal Crown Cola (caffeine-free-low-calorie cola) and Osborne (laptops).

Although extensive empirical evidence in favor of the advantages of pioneer strategy in consumer and industrial markets has developed in growth sectors such as maturity (Robinson and Fornell, 1985; Urban et al. 1986; Lambkin, 1988; Parry and Bass, 1990), supported by the development of consumer preferences for the pioneers (Carpenter and Nakamoto, 1989; Kardes and Gurumurthy, 1992; Kardes et al. 1993), we found studies where the results show combined effects for and against pioneering market entry (Robinson et al. 1992, Christensen and Bower, 1996; Bohlmann et al., 2002). Research also discovered instances where the results for early market entrants have not been successful (Golder and Tellis, 1993).

The strategy of entering the market first has advantages for companies in terms of patent development, higher product quality, and broader product lines. In addition they enjoy cost savings in the supply chain and consumer preference in markets with imperfect information about the product (Robinson and Fornell, 1985).

However, it can be risky and high costly to be a pioneer. The costs of product development and marketing are often too high to make the consumer interested in the product and decide to buy. The risk of failure is high because the demand potential is not known with certainty (Urban et al. 1986).

In this context, with advantages and disadvantages for first movers in a new market, the initial aim of our study is to do a literature review of almost 30 years of research in this field of knowledge, starting in 1985. We will subsequently present the methodology used, then the main theories and discuss the empirical evidence we found. We will present some considerations about the characteristics of the sample, the definition and evaluation-measured results, then present our proposed integrative model for the development of sustainable competitive advantage for pioneering companies in order of market entry, and finally we offer conclusions and lines of future research.

METHODOLOGY

The methodology targets a descriptive exploratory analysis, with which we can evaluate the current status of the issue in question. The data collection consisted of researching the most relevant research on this topic as well as consulting the databases Business Source Premier and Host EPSCO ABI Inform. From these databases were collected articles related to the topic of the first mover advantage, (using the following concepts as key words: "pioneer advantage", "first mover" and "order of entry") spanning a period of twenty seven years from 1985 to 2012 inclusive. In the search we found that a total of 274 published articles are dealing with the subject of pioneers solely in prestige journals (See figure 1): a few years ago Lanzolla and Suarez (2007) found 839 articles also using the Business Source Premier. However, for this study 68 articles published in scientific journals listed in the ISI Web of Knowledge have been considered including journals with rigorous quality standards and items with substantial references in the knowledge area (See figure 2).

Both the database Business Source Premier and the reports collected from the ISI Web Knowledge database show that in the last ten years there was a decrease in the particular articles we sought in the most prestigious journals. We judge this to be because there are increasingly fewer relevant and original contributions in this field of knowledge.

The highest quality academic and research journals which have published the greatest amount in this area are: Strategic Management Journal, Journal of Marketing Research and Management Science (see Table 1).

LITERATURE REVIEW

In this section we present the main theoretical contributions to first mover advantage, the empirical evidence in favor of early market entry, evidence with mixed results, empirical studies with evidence against the effect of being first in the order of market entry, and some considerations on sample characteristics and outcome evaluation measures.

Theoretical Contributions to first mover advantage.

The first-mover advantage concept is self-explanatory because it establishes that the first entrant into a market may acquire certain advantages over subsequent entrants, resulting in a sustainable competitive advantage for the former (Frawley and Fahy, 2006).

The origins of First Mover Advantage Theory begin in the 1940's and can be traced to the 1960's. Although there are references to such advantage, there was only limited empirical research about the concept prior to Bain's study. It was Bain (1956) who established the foundation for this topic, thanks to his rigorous empirical investigation. Bain studied the barriers to new competition and the conditions of market entry of twenty American manufacturing industries; the author examined economies of large scale, product differentiation, cost advantages and capital requirements as possible sources of economic barriers to entry.

First-mover literature really came to the fore in the late 1970's and 1980's. The first significant contributor was Gal-Or (1985), where the author shows that if two identical players move sequentially in a game, the player who moves first (the leader) has greater benefits than the player who moves second (the follower), if the market leader can avoid imitation. On the other hand, if the follower does mimic the characteristics of the original product and devotes a significant budget to R & D to obtain a new patent, the greater benefits are for the player who moves second.

Lieberman and Montgomery (1988) propose a model for the generation of pioneer advantages. They start with asymmetries caused by changes in the environment for a firm that has the capacity or ability to take advantage of them or simply because of luck (for example, P&G in the disposable diaper industry; that success was jump-started by the increase in the birth rate in the U.S.). Once the asymmetry is generated, a variety of mechanisms allow the company to use its position to raise the magnitude and/or durability of the benefits of being a pioneer. These authors also identify the risks of early market entry by presenting the disadvantages pioneers face:

* "Free riding" effects. Imitation costs are lower than innovation in many industries, so the follower benefits from pioneering investments in R & D, customer education and infrastructure development.

* Technological and market uncertainty. Breaking into a new market can be a very risky, by not knowing their customers or technological requirements (ex. VW's early entry in to the compact car market gave Toyota the opportunity to overcome and after the market since it has already been studied)

* Changes in technology and customer needs. Technologies and customer needs are constantly changing, since they are dynamic forces: pioneers, unless they have the skills needed to maintain leadership, are sometimes overwhelmed by followers who detect these changes because they are not developing technology or satisfying existing identified needs.

* Inertia's first occupant. Inertia can occur due to complacency, arrogance or lack of

attention to changes in technology and customer needs. The company can be absorbed in a specific market or specialize in areas that restrict flexibility. It also can become organizationally inflexible with routines, standards or internal policies that prevent change (ex. Timex with innovation in distribution by pharmacies or supermarkets vs. Swiss brands with traditional distribution strategy by jewelers).

For Carpenter and Nakamoto (1989), winners of the Journal of Marketing Research award for their article (Carpenter and Nakamoto, 1994), the formation of consumer preferences produces a powerful competitive advantage for pioneers in two dimensions:

1) A pioneering company develops the best position for influencing the weight of attributes used to evaluate buyer brands. This change in preference results in higher market participation for the pioneer and a lower market share for followers. The client's learning mechanisms focus on the product characteristics of the pioneers.

2) The pioneer becomes the prototype of the brands in its category; it defines the structure of preferences which protects the pioneer from competition while simultaneously encouraging imitation. For followers, succeeding in the new market means seeking differentiating attributes that modify the structure of the pioneer product.

Fershtman et al. (1990), examine the effects of order of entry into an industry. The pioneer company initially enjoys advantages...

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