Business, Legal & Accounting Glossary
First-mover advantage can be referred to as an advantage that can be gained by any company which is first to capture a segment of the market. First-mover advantage is not necessarily gained by any company which is first in terms of starting a business in any sector, but any significant company which makes the first attempt at establishing itself can get first-mover advantage. Explaining in a better way, consider an example of Amazon.com, which may not be the first company to sell books online, but it is definitely a significant company to get established in the online book market.
The first-mover advantage was popular with the internet world, but now that importance is simply lost. First-mover advantage plays a significant role in determining market share but may not aid sufficiently in the success of any business. First-mover advantage is fruitful only when returns justify risks. First-mover advantage can be near-monopoly status and high margin profits.
First-mover advantage gained by first moving companies can be of various forms. Firstly, we can say when any company enters market first; it gets the opportunity to capture market share more easily as there are no rivals and hence no worries to save customers from getting attracted to rival company’s goods or services. Secondly, even if rivals come in the market, first-mover company has a well-defined management team that implement policies that ensures strong competition. Polices corresponding to similar products, brand loyalty, retail outlets, up-and-running allocation systems and many more are taken by first-mover companies to increase competition. In this way, first-mover companies can defeat their rivals and strengthen their position and fight more effectively to safeguard formerly acquired share and also continue to expand.
First-mover advantage is a real concept and there are some companies that have actually gained a lot of advantages by moving first in the market. Firstly, we can talk about Richard Arkwright, who was creator of modern factory system. Arkwright developed a comprehensive mechanized system for cotton yarn. Using this mechanism he built several factories of his own and within five years, he owned fifteen Arkwright-patent mills that operated around the north of England. Before court declared his invented technology was free for use by all, Arkwright enjoyed six years of first-mover advantage. He not only made a leading position in spinning market but also made constant expansions and achieved superior competence. Competitors chased Arkwright all his life but could never catch up him.
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This glossary post was last updated: 28th March, 2020 | 4 Views.