Market entry Part 2 – Timing or the first mover advantage
In the previous part of this article series, the management of the English steak house investigated the different directions for expansion and they made the decision to continue expanding in the direction of Poland, more specifically in Warsaw. Of course a strategic decision like this is extremely complex and one cannot exclude the question of timing from it. The second part of the article series is about first and second mover advantages.
First mover advantages
The concept of first mover advantage was introduced in strategic management literature by Lieberman and Montgomery (1988). According to the authors, the introduction of a new product or entering an untapped market (in a broader sense, any new combination of resources and capabilities) can generate extra rents to a given company.
In case a company is the first to enter a market, it can realize extra advantages and profits depending on how much time it takes for its competitors to follow it. The aim of the entering company in this case is to convert these advantages into sustainable ones. How can they achieve that? The answers should be searched for in the field of entry barriers.
The aim of the steak house then is to enter the Polish market first (let’s assume that there are not many restaurants like that in Poland at the time). In order for the company to exploit the advantages that come with being the first mover as much as they can, the management of the company imagined an intensive expansion. They want to open 20 restaurants in Poland in a year in cities with more than 100,000 people. The other very important pillar of the entering strategy is the customer loyalty program that will enable the company to reach its customers directly and personalize the discounts for them. This latter project will tie potential and existing customers to the company, thereby creating an extra entry barrier.
At first it may seem that the first mover advantage takes it all but the ‘big risk big return’ principle applies here as well. The first mover usually takes a higher risk than its potential followers. The lack of reliable suppliers, the unknown consumer habits can impose significant risks (or as the authors refer to them: disadvantages).
Second mover advantages
The second mover strategy emerged in order to avoid the above mentioned risks. The advantages of first movers can often be imitated, and the followers will do so, passing the first mover along its beaten track that had cost it a substantial amount of resources. The example of Atari and Nintendo demonstrates very well how the real profits are realized by the second mover Nintendo that “sat on” the product of first mover Atari.
The management of the steak house thus consciously wants to be the first to create a national network in Poland as soon as possible. Since the question on timing has been answered, only the entry method needs to be determined for the final decision.
In the next part of the article series we will learn what the management of the English steak house decided.
- Market entry Part 0 – Basics
- Market entry Part 1 – How do we choose the company’s target market?
- Market entry Part 2 – Timing or the first mover advantage
- Market entry Part 3 – Entry modes
Referred literature:
Lieberman – Montgomery (1988): First mover (dis)advantages: retrospective and link with the resource-based view.