
Timing of Entry


Demand and technology uncertainty
First and Second mover advantages



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

Automobile
1
0.8
0.6
0.4
0.2
0
0
Firms
Sales
10 20
Years Since Commercialization
30

Technological
Uncertainty
Resolved
Demand
Uncertainty
Resolved
Invention Commercialization Firm
Take-Off
Sales
Take-Off time

Invention
?
Commercialization Firm
Take-Off
?
Sales
Take-Off
?
time

Synthes Case Discussion





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




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




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





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)






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

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


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