First mover advantage is the advantage gained by being the first company in a new market segment, allowing for control of resources and creation of barriers to entry. A careful review of strategic management is necessary to weigh the costs and benefits, and a first mover needs to generate or capitalize on the network effect to gain market acceptance.
First mover advantage, or FMA, is the advantage gained by being the first company in a new market segment. Sometimes, first mover advantage gives the company an advantage that may be difficult or even impossible for other market participants to overcome. The first company in a given market segment can often take control of resources that subsequent entrants may not be able to duplicate. The first mover in a market can sometimes create barriers to entry that make it difficult for new competitors to enter the market.
The head start is most apparent when a large company is first to market, as a small company may not be able to expand quickly enough to capitalize on the advantage. If a small company cannot exploit first mover advantage, a larger company can step in and compete where the small company could not, leveraging what is known as second mover advantage. The first significant entrant in a market often enjoys large profit margins and monopoly advantages until subsequent firms enter the market and create a competitive atmosphere. Depending on the product and industry, it can take some time for competitors to enter the market, making first-mover advantage important.
Because the costs of becoming the first company to enter a given market can be significant, the company needs to carefully weigh the costs and benefits of first mover advantage. A company will benefit from a careful review of its strategic management to determine whether the benefits associated with first mover advantage outweigh the costs. The company will have to consider the costs of creating the new market segment and the potential size of the market, as well as the prospects for competition.
A first mover needs to be able to generate or capitalize on the network effect to help the product category, and by extension your own product, gain market acceptance. The network effect refers to the concept that the more users a new product or service has, the more valuable it is to all those users. The classic example of the network effect is the telephone. The more people who own phones, the more valuable they are to whoever owns one. Creating value for users of a product by expanding the market through the network effect enhances first-mover advantage.
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