Market Entry Timing Strategy Essay

Empirical study (Robinson and Fornell, 1985) shows that first mover 20%, early followers 17%, and late entrants 13% market share. Robinson (1988) believes that the order of entry alone explain 8.9% of the variation in market shares. It has been shown that the longer the elapsed time between entry of the first mover and that of later entrants, the more opportunities becomes available to the first mover to achieve cost and differentiation advantages. A longer response time provides the first mover to promote awareness and trial that contribute to category learning and for consumers to integrate into their memory additional information through media and WoM. Lieberman and Montgomery (1988) believe that first-mover advantages arise from three primary sources: Technological leadership, pre-emption of assets, and buyer switching costs. Technological leadership provides a learning curve, where unit production fall with cumulative output, which generates a sustainable cost advantage for the early entrant if learning can be kept proprietary and the firm can maintain leadership in market share. If the first-mover has superior information, it may be able to purchase assets at market prices below those that will prevail later in the evolution of the market, such as natural resources and retailing or manufacturing locations. Where there is room for only a limited number of profitable firms, the first-mover can often select the most attractive niches and may be able to take strategic actions that limit the amount of space available for subsequent entrants. With switching costs, late entrants must invest extra resources to attract customers away from the first-mover firm. Buyer may rationally stick with the first brand they encounter that performs the job satisfactorily. Brand loyalty of this sort may be particularly strong for low-cost convenience goods. Thus, late entrants must have a truly superior product, or else advertise more frequently or more creatively. Schnaars (1986) implies that the early bird normally catches and retains the worm. ‘Me-too’ products introduced by later entrants were much more likely to fail. Second entrants obtain on the average only about three-quarters of the market share of the pioneer, and later entrants are able to capture progressively smaller shares. Consumers tend to know and favour the pioneering product, they have no reason to experiment with subsequent entries. These cost advantages put later entrants at a competitive disadvantage, and pioneers may be able to erect entry barriers that lock out subsequent entrants. Late entrants can also find that the field is crowded and the market offers little opportunity. However, a well-conceived ‘second-but-better’ entry, backed by aggressive advertising, may be able to surpass the pioneer’s entry. Later entrants must be better in terms of performance or price, or both, if they are to have any chance of success. Many firms with str ong market orientation seem to embrace later entry. No one entry strategy proved best in all situations. Primary benefit for the pioneer is to build an unassailable position before later entrants recognize the promise of the market or are willing to take the risks of an early entry. It is most appropriate when image and reputation are important to the customer, experience effects are important and not easily copied, brand loyalty accrues to the pioneer, and cost advantages can be obtained by early commitment to suppliers and channels. It carriers many risks, because almost every aspect of an emerging market is unknown. Many pioneers end up pursuing false leads that later entrants are able to avoid. Thus it must be willing to commit a great deal of money – for R&D and educate customers’. The chances of a pioneer getting the product right for the first time are almost nil. One study found that it takes seven to eight years on the average before a firm that enters a new line of business actually turns a profit. Golder and Tellis (1993) state that for pioneers, consumer-based advantage relate to the benefits that can be delivered from the way consumers first choose and then repurchase the product. The pioneer may become the standard for the product category, and a pioneer can lock-in some customers in categories that have high switching costs. Seventy percent of market leaders are pioneers, and almost half of all pioneers are market leaders. Second firm to enter the market would obtain only 71% as much market share as the pioneer, and third firm to enter would obtain only 58% as much. On the other hand, they believe that if later entrants can leapfrog pioneers with superior technology, positioning, or brand names, firms could better off entering late. Evidence shows that the advantages of being first-in are almost equally balanced by the many pitfalls and disadvantages. Kerin, Vradarajan, and Peterson (1992) state that one can achieve first-mover status by producing a new product, use a new process, and/or enter a new market. They distinguish between two perspectives: the economic-analytical and the behavioural. The former indicates that the pioneer creates barriers to entry so it becomes costly for others to follow, this in turn lengthens the lead time, thus enabling the first mover to benefit initially from no competition, and being more experienced once new entrants emerge. From the behavioural view, the first mover communication is more effective and it obtains reputational advantage. Through purchase and trial, customers can become more reluctant to switch. Similarly, there are economic and behavioural views on market contingencies. From the former perspective, the uncertainty of product demands can lower resource commitments and reduce cost advantage due to scale, but small scale operations are more efficient. A first mover can influence how attributes are valued, define the ideal attribute combination, and ultimately influence consumer’s preferences to its benefit over later entrants. The industry relies heavily on advertising and marketing, thus early consumer exposures to advertising is even more beneficial. The technology changes quickly, so the legal protection and experience advantage decreases. From the behavioural perspective, products can be easily evaluated before purchase, so the purchase and trial benefits decrease. The cost of evaluating a product and making a purchase mistake is lower, hence switching costs decreases. But when consumers need to invest in special, related assets, the switching costs increase. However, following firms may benefit from the ability to free-ride on first-mover investments, resolution of technological and market uncertainty, technological discontinuities that provide ‘gate-ways’ for new entry, and various types of incumbent inertia. They can achieve a CA by influencing consumers’ preferences rather than responding to them, such by moving away from the pioneer and develop a more desirable position. Early entrants’ main benefit is to learn from the pioneer’s experience, and avoid many of the onerous costs, along with being able to assess the market’s reaction to the pioneer’s entry. Many early entrants have relied on some combination of marketing clout, product enhancement and low-cost production. Later entries can benefit from the passage of time. If the product form is changing rapidly and standardization has not been achieved, the later entrant may be able to leapfrog earlier entrants by introducing a superior product, backed by market clout. The later entrant can gain a sizable share of proven growth marketing by capitalizing on the low-cost production of me-too products. Many foreign companies pursue this strategy. Late entrant is risky when earlier entrants are able to erect entry barriers, or the market is already flooded with products that leave no room for enhancement. Level Brother’s Persil entered the tablet detergent market as a pioneer, whereby P&G’s Ariel entered as a follower. The former achieved satisfying customers that stuck to the brand, despite low switching costs. It built a brand image that indicated it was the best, it was innovative and technological advanced. It increased customer choice, which could lead to increased satisfaction and loyalty. Persil soon enjoyed large or monopoly market-share in the category, and had potentially highest share after followers enter. Moreover, entering early allowed it to learn from experiences, with more time for trial and error. By entering first, it could create barriers for entry in the retail through shelf-space, and have patent on technology. Persil also set rules for competition on features, benefits and added services. It could also set the price value based or cost based, thus deciding the market. Ariel, on the hand, had the opportunity to assess the market profitability upon entrance, and needed less knowledge to educate the market. It could learn from Persil’s mistakes in terms of pricing, and had less risk to brand equity. Ariel also enjoyed lower R&D costs and could free-ride on Persil’s effort, in addition to develop a better product. The saved time can be used for optimal positioning. The two competitors were competing heavily on the price per wash, higher and lowering accordingly to each other, starting at 22.0p and 28.0p respectively in 1999, both finishing at 20.0p in 2004, but Ariel did better in the end through learning. In conclusion, one can say that faster entry into the industry does not necessary guarantee absolute competitive advantage. The magnitude of first-mover advantage depends on the degree of fit between the environmental opportunity and the first-mover’s skills and resources. Market pioneering is not a strategy that is appropriate for all firms. In organizational reality, firms are more often a later entrant than a pioneer.