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Market Entry —The Pioneer
Marc Crystal discusses the 'be first to market’principle
The timing of market entry is critical to the success of a new product. A company has two alternatives: it can compete to enter a new product market first - otherwise known as 'pioneering' - or it can wait for a competitor to take the lead, and then follow once the market has been established.Despite the limitations of existing research, nobody denies that there are advantages to being a pioneering company. Over the years, there has been a good deal of evidence to show a performance advantage for pioneers.
For many new products, customers are initially unsure about the contribution of product characteristics and features to the product's value.Preferences for different characteristics and their desired levels are learned over time. This enables the pioneering company to shape customer preferences in its favour. It sets the standard to which customers refer in evaluating followers' products.The pioneering product can become the classic or 'original' product for the whole category, opening up a flood of similar products onto the market, as exemplified by Walkman and Polaroid.
The pioneering product is a bigger novelty when it appears on the market, and is therefore more likely than those that follow to capture customer and distributor attention. In addition, a pioneer's advertising is not mixed up with competitors' campaigns. Even in the long term, followers must continue to spend more on advertising to achieve the same effect as pioneers. The pioneers can set standards for distribution, occupy the best locations or select the best distributors, which can give them easier access to customers. For example, in many US cities the coffee chain Starbucks, as the first to market, was able to open coffee bars in better known locations than its competitors. In many industrial markets, distributors are not keen to take on second and third products, particularly when the product is technically complex or requires large inventories of spare parts.
'Switching costs' arise when investments are required in order to switch to another product. For example, many people have developed skills in using the traditional 'qwerty' keyboard. Changing to the presumably more efficient 'dvorak' keyboard would require relearning how to type, an investment that in many cases would exceed the expected benefits in efficiency. Switching costs also arise when the quality of a product is difficult to assess. People who live abroad often experience a similar 'cost' when simple purchase decisions such as buying detergent, toothpaste or coffee suddenly become harder because the trusted brand from home is no longer available. Pioneering products have the first chance to become this trusted brand. Consequently, the companies that follow must work hard to convince customers to bear the costs and risks of switching to an untried brand of unknown quality.
Unlike other consumer sectors,the value to customers of many high technology products relies not only on their features but also on the total number of users.For example, the value of a videophone depends on the number of people using the same or a compatible system. A pioneer obviously has the opportunity to build a large user base before competitors enter the market. This reduces followers' ability to introduce differentiated products. There are other advantages of a large user base, such as the ability to share computer files with other users. Thus, software companies are often willing to give away products to build the market quickly and set a standard.
