Background
It is a marketing belief that the first brand/product to market enjoys a competitive advantage. This could be for various reasons. The commonest belief is that merely by being first, consumers will either believe your product is better, or else just get used to buying it. This would create a competitive disadvantage for subsequent competitor entries. But is there really an advantage to merely being first? If so, this would mean that during the COVID pandemic might be a bad time to stop innovating!
This post looks at studies of order of entry impact on market share, which control for other factors. We want to exclude any impact from marketing mix differences (e.g. advertising spend) or product differences. This gets at the real first to market benefit.
Findings
- First entrants have a market share benefit over subsequent entrants: The analyses looks at the share of the first entrant after a competitor enters the market. If there were no benefit to being first, the first entrant would have a 50% share after a competitor jumps in . In fact, after a competitive entry,, the first to market product had a 7% higher share in packaged good, and a 16% higher share in Pharma.
- Waiting longer means losing more share when you do jump in: The Pharma study found that every three months of delay cost the second entrant almost a full share point.
Implications
The obvious conclusion is that you want to be first to market. Certainly, given the choice, we’d probably all like to be the first-in category leader and gain a first to market benefit. While each category likely has a different order of entry effect, you could model a range of possibilities and build this into your innovation investment models.
One concern with this analysis is that it looks at relatively stable categories — grocery store products and drugs tend to be products that don’t change rapidly once they are introduced. High tech products like computers change so quickly that the “first entrant” may become “forgotten” soon and lose its advantage. That said, category-creating product like the iPhone enjoyed a long period of market share advantage.
The other concern is the cost of failure. The analyses cited here are looking at examples where there were multiple entries, indicating a successful product innovation by the original entrant. If the first-in product flops (think Hoverboard) then there aren’t any competitors and the category goes away. Obviously there is a cost to innovating if you can’t sell the resultant product! Some companies choose a follower strategy, accepting a share penalty but avoiding the risk and expense of developing unwanted products.
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The small print
Sources: Pharma – Regnier & Ridley, 2015, 29 second entrants over 1998-2009 with at least 4 years of share history and a product considered similar to first entrant. CPG – Kalyanaram & Urban, 1992, 18 second entrants. As mentioned above, these studies looked only at products where there were competitors. They don’t look at the cost of a failed innovation.