Posted on 26 November 2013.
Every business school student, entrepreneur or consumer product marketer knows and understands the advantages and importance of being the First-Mover in a given product category. Even those not actively participating in the space instinctively understand that it is best to be first to market with a breakthrough product. First-Mover Advantage (FMA) has become popularized with the dawn of the internet age. However, the concept has been around as long as we have been packaging and selling goods.
An easily explained example of FMA was the introduction of disposable baby diapers to the consumer product marketplace by Proctor & Gamble. P&G discovered a synthetic fiber then only available in Europe. The acquisition of the proprietary fiber enabled disposable diapers to be massed produced at prices that were exceedingly popular with parents. This created a new category and P&G enjoyed a FMA in the disposable diaper space that the Company exploits to this day.
While we instinctively know why a FMA is desirable and of premium value to a product, we often do not anticipate the pressures that can be applied to such a novel new product. This is called a First-Mover Disadvantage (FMD).
One paramount concern is Free-Riders. These are businesses that study a breakthrough product, its Research and Development, manufacturing processes, formula, marketing, etc. and replicate without exposing themselves to the upfront risks that are endemic in launching any breakthrough item. Imitation costs are much lower than innovation costs. There are successful firms that specialize in this technique.
The Limited was amazingly successful at replicating the style and the detail of couture ladies fashion dress and suit designs, streamlining production, lowering costs and moving customers from boutiques and department stores to their own eponymous shops. RIM, created the Blackberry, a smashing success, only to be almost fully displaced by Apple and Samsung products that studied, improved and advanced on their technology.
Another FMD is the assumption of marketing risk. It can be expensive and difficult to educate retailers and consumers to the features and benefits of a new product. Innovators often exhaust their resources in the development and introduction of their product(s) only to expire before they can be successfully commercialized. The initial mover assumes all of the market creation risk. Subsequent Free-Riders can often fill the void with a version of the alpha product and often are more successful.
Technology shifts often create a changing consumer. Remember the VHS video player? The cassette tapes these bulky units played were an entertainment tsunami. That was until the DVD format was developed and introduced. The smaller compact DVD discs and superior quality literally crushed the purveyors of VHS products within months. Especially with technology, you are never the greatest only the latest. Brother’s typewriters, Eastman Kodak and Polaroid are examples to consider.
Incumbent inertia is another FMD to be guarded against. Some management’s become inflexible, rigid or content to operate the way they have always operated even as markets change. Simply search the list of national and regional retailers that has disappeared in the last 40 years. It is stunning. Major department stores have been bankrupted or merged into more aggressive groups. Sears, once the largest and most successful retailer in the world, is on life support as I write this. They could easily go the way of Montgomery Ward, Circuit City, Mervyns and countless others.
Another sign of incumbent inertia is the inability, or conscious decision not to cannibalize an existing product. The Ford Motor Company was the most successful industrial enterprise in history in the first third of the 20th century. Henry Ford was brilliant but inflexible. The consumer could buy a Model T in any color, as long as it was black. As a result, his firm was displaced by General Motors and its brilliant maestro Alfred Sloan. Sloan designed a stair step series of marketing and brand platforms that moved consumers from Chevrolet, to Pontiac, to Buick, then Oldsmobile and ultimately to Cadillac as they moved from various stages of life and success.
Charles Revson did the same with Revlon cosmetic, fragrance and skin care products. Revlon in the mid-20th century was the most successful beauty brand in the world. Rather than sit on his laurels Mr. Revson introduced the higher priced Ultima II line and then, for exclusive specialty stores, Etherea was launched. Estee Lauder Cosmetics has accomplished the same with her brands stepping to Clinique, Bobbi Brown, MAC, and Origins among others to successfully fill market niches. Contemporary beauty product and fragrance lines of the day like Erno Laszlo, Imperial Formula and Frances Denney atrophied to nothing as they did not innovate and adapt to market changes.
We advise many of our clients when customizing their Business Plan to anticipate the cannibalization of their product by themselves. If an item is successful it will be copied by others. It is incumbent on innovative entrepreneurs to maximize all possible returns on their investment, creativity and hard work. Replicate and reposition your product before others do!
By garnering the smallest niche within a huge category a product can be hugely successful. This FMA may be tiny but it can be lucrative. Just remember that success breeds copycats. Anticipate that you will experience Free-Riders and plan the appropriate strategy to maximize and safeguard protection for your hard work.
Geoff Ficke has been a serial entrepreneur for almost 50 years. As a small boy, earning his spending money doing odd jobs in the neighborhood, he learned the value of selling himself, offering service and value for money.
After putting himself through the University of Kentucky (B.A. Broadcast Journalism, 1969) and serving in the United States Marine Corp, Mr. Ficke commenced a career in the cosmetic industry. After rising to National Sales Manager for Vidal Sassoon Hair Care at age 28, he then launched a number of ventures, including Rubigo Cosmetics, Parfums Pierre Wulff Paris, Le Bain Couture and Fashion Fragrance.