First to Market, First to Fail? Real Causes of Enduring Market Leadership

Be first to market. This principle is one of the most enduring in business theory and practice. Entrepreneurs and established giants are always in a race to be first. Research from the 1980s that shows that market pioneers have enduring advantages in distribution, product-line breadth, product quality, and, especially, market share underscores this principle. For example, several studies of the PIMS (profit impact of market strategies) database show that mean market shares over a large cross section of businesses are around 30 percent for market pioneers, 19 percent for early followers, and 13 percent for late entrants.1 Similar estimates emerge from a study of the completely different ASSESSOR data.2 That two independent databases collected by different methods and researchers should yield similar results is impressive. In addition, PIMS data show that more than 70 percent of current market leaders are market pioneers, while Urban et al. are unaware of any pioneers in their sample that failed.3 Further evidence in support of a pioneer advantage comes from an Advertising Age study that shows that, of twenty-five market leaders in 1923, nineteen were still market leaders in 1983, and all were still in the top five.4 The belief in enduring pioneer advantage grew so strong that some authors even suggested that firms preannounce a product’s introduction to claim the advantages that accrue to the pioneer.

But as most people came to believe in the strong advantages of market pioneering, some researchers warned of potential problems with the studies on which this belief was based.5 Kerin, Varadarajan, and Peterson state, “The belief that entry order automatically endows first movers with immutable competitive advantages and later entrants with overwhelming disadvantages is naive.”6 In particular, the data that support the advantages of pioneers suffer from three key limitations.

First, PIMS and ASSESSOR data are collected by surveying surviving firms. Thus they include only survivors and not failures. Failures may hold important lessons, and their inclusion may change the statistics. Second, these two databases determine the market pioneer by surveying a current employee in a responding firm. Such surveys may be biased because current market leaders may see or promote themselves as pioneers, especially if the market is old, the managers are new, and the firm has been successful.

Read the Full Article:

Sign in, buy as a PDF or create an account.

References

1. R.D. Buzzell and B.T. Gale, The PIMS Principles: Linking Strategy to Performance (New York: Free Press, 1987);

M. Lambkin, “Order of Entry and Performance in New Markets,” Strategic Management Journal 9 (1988): 127–40;

W.T. Robinson, “Sources of Market Pioneer Advantages: The Case of Industrial Goods Industries,” Journal of Marketing Research 25 (1988): 87–94; and

W.T. Robinson and C. Fornell, “Sources of Market Pioneer Advantage in Consumer Goods Industries,” Journal of Marketing Research 22 (1985): 305–317.

2. G.L. Urban, T. Carter, S. Gaskin, and Z. Mucha, “Market Share Rewards to Pioneering Brands: An Empirical Analysis and Strategic Implications,” Management Science 32 (1986): 645–659.

3. Ibid.

4. “Study: Majority of 25 Leaders in 1923 Still on Top,” Advertising Age, 19 September 1983, p. 32.

5. D.A. Aaker and G.S. Day, “The Perils of High-Growth Markets,” Strategic Management Journal 7 (1986): 409–21;

A.D. Chandler, “The Enduring Logic of Industrial Success,” Harvard Business Review, March–April 1990, pp. 131–139;

A. Glazer, “The Advantages of Being First,” American Economic Review 75 (1985): 473–480;

M.B. Lieberman and D.B. Montgomery, “First-Mover Advantages,” Strategic Management Journal 9 (1988): 41–58; and

M.J. Moore, W. Boulding, and R.C. Goodstein, “Pioneering and Market Share: Is Entry Time Endogenous and Does It Matter?,” Journal of Marketing Research 28 (1991): 97–104.

6. R.A. Kerin, P.R. Varadarajan, and R.A. Peterson, “First-Mover Advantage: A Synthesis, Conceptual Framework, and Research Propositions,” Journal of Marketing 56 (1992): 48.

7. P.N. Golder and G.J. Tellis, “Pioneer Advantage: Marketing Logic or Marketing Legend?,” Journal of Marketing Research 30 (1993): 158–170.

8. Ibid.

9. G.S. Day, A.D. Shocker, and R.K. Srivastava, “Customer-Oriented Approaches to Identifying Product-Markets,” Journal of Marketing 43 (1979) 8–19; and

S. Ratneshwar and A.D. Shocker, “Substitution in Use and the Role of Usage Context in Product Category Structures,” Journal of Marketing Research 28 (1991): 281–295.

10. For example, see T. Levitt, “Marketing Myopia,” Harvard Business Review, July–August 1960, pp. 45–56.

11. Golder and Tellis (1993).

12. Ibid.

13. Aaker and Day (1986);

G.S. Day and R. Wensley, “Marketing Theory with a Strategic Orientation,” Journal of Marketing 47 (1983): 79–89;

Lieberman and Montgomery (1988);

Kerin, Varadarajan, and Peterson (1992); and

Urban et al. (1986).

14. Financial World, 20 May 1964, p. 5; 5 April 1967, p. 6; 5 April 1967, p. 6; 8 September 1965, p. 5.

15. Procter & Gamble, Annual Report, 1977.

16. “For Babies Only — Chux Throw-away Diapers,” Delineator, 127 (1935): 6–7.

17. “Disposable Diapers,” Consumer Reports, March 1961, pp. 151–152.

18. P. Freiberger and M. Swaine, Fire in the Valley: The Making of the Personal Computer (Berkeley, California: Osborne/McGraw-Hill, 1984); and

A. Gupta and H.D. Toong, “The First Decade of Personal Computers,” in Insights into Personal Computers, ed. A. Gupta and H.D.Toong (New York: IEEE Press, 1985), pp. 17–36.

19. For example, see “Personal Computers: And the Winner Is IBM,” Business Week, 3 October 1983, pp. 76–95.

20. Freiberger and Swaine (1984);

Gupta and Toong (1985); and

G.E. Nelson and W.R. Hewlett, “The Design and Development of a Family of Personal Computers for Engineers and Scientists,” in Gupta and Toong (1985), pp. 37–54.

21. “Microcomputers Catch on Fast,” Business Week, 12 July 1976, p. 50.

22. See, for example:

Robinson and Fornell (1985); and

Urban et al. (1986).

23. Ampex, Annual Reports, 1969–1976, 1980;

S. Ghoshal and C.A. Bartlett, “Matsushita Electric Industrial (MEI) in 1987” (Boston: Harvard Business School, Case 9-388-144, 1988);

R.Y. Lurie, “The World VCR Industry” (Boston: Harvard Business School, Case 9-387-098, 1987);

Matsushita, Annual Reports, 1971–1973, 1975, 1977, 1979, 1981, 1985);

R.S. Rosenbloom and M.A. Cusumano, “Technological Pioneering and Competitive Advantage: The Birth of the VCR Industry,” California Management Review 29 (1987): 51–76;

R.S. Rosenbloom and K. Freeze, “Ampex Corporation and Video Innovation,” in Research on Technological Innovation, Management, and Policy, ed. R.S. Rosenbloom (Greenwich, Connecticut: JAI Press, 1985); and

Sony, Annual Reports, 1973–1974, 1976–1982, 1984.

24. Consumer Reports (1961).

25. “The Great Diaper Rash,” Forbes, 15 December 1970, p. 24;

M.E. Porter, “The Disposable Diaper Industry in 1974” (Boston: Harvard Business School, Case 380–175, 1980);

H. Tecklenburg, “A Dogged Dedication to Learning,” Research Technology Management 33 (1990): 12–15; and

“The Great Diaper Battle,” Time, 24 January 1969, pp. 69–70.

26. B. Coe, Cameras: From Daguerreotypes to Instant Pictures (New York: Crown Publishers, 1978);

E.S. Lothrop, Jr., A Century of Cameras (Dobbs Ferry, New York: Morgan & Morgan, 1973); and

B. Newhall, The History of Photography (Boston: Little, Brown, 1982).

27. Forbes (1970).

28. Rosenbloom and Cusumano (1987).

29. “A Flickering Picture for Video Recorders,” Business Week, 21 August 1978, p. 28.

30. Ampex, Annual Reports, 1972 and 1974; and Rosenbloom and Cusumano (1987).

31. “Personal Business,” Business Week, 4 June 1960, p. 129.

32. “Color TV,” Consumer Reports, November 1961, pp. 612–613.

33. D.J. Collis, “General Electric — Consumer Electronics Group” (Boston: Harvard Business School, Case 9-389-048, 1988).

34. Business Week (1960).

35. “IRS Approval of Low-Calorie Claim Clears Way for Gablinger’s Expansion,” Advertising Age, 17 February 1969, p. 37.

36. “Gablinger’s Goes to Gumbinner; Grey Gets Knickerbocker as 2 Shops Resign,” Advertising Age, 27 November 1967, p. 2; and

“Intro of Gablinger’s Leads to Top-Level Shift at Rheingold, ” Advertising Age, 1 April 1968, p. 6.

37. “Meister Brau Wins Amylase Patent Suit,” Advertising Age, 30 March 1970, p. 62.

38. “How Miller Won a Market Slot for Lite Beer,” Business Week, 13 October 1975, p. 116.

39. “Turmoil among the Brewers: Miller’s Fast Growth,” Business Week, 8 November 1976, pp. 58–67.

40. Freiberger and Swaine (1984); and

M. Lynch, “Investors Buying Nautilus for Shares in Apple Are Told to Watch for a Worm,” Wall Street Journal, 8 October 1980, p. 10.

41. R.B. Adams, Jr., King C. Gillette: The Man and His Wonderful Shaving Device (Boston: Little, Brown, 1978).

42. L. Ingrassia, “Gillette Holds Its Edge by Endlessly Searching for a Better Shave,” Wall Street Journal, 10 December 1992, p. 1.

43. S.N. Chakravarty, “We Had to Change the Playing Field,” Forbes, 4 February 1991, pp. 82–86; and Ingrassia (1992).

44. Ingrassia (1992).

45. Chakravarty (1991).

46. “Sales Bubble for Diet Drinks,” Business Week, 27 June 1964, pp. 88–92; and

F. Sinclair, “Diet-Rite Budget Boosted; It’s ‘Not Fad, but Forever,’” Advertising Age, 28 October 1963, pp. 1–2.

47. Golder and Tellis (1993).

48. P.F. Anderson, “Marketing, Strategic Planning and the Theory of the Firm,” Journal of Marketing 46 (1982): 15–26.

49. D.A. Aaker, Developing Business Strategies (New York: John Wiley, 1988); and

D.F. Abell and J.S. Hammond, Strategic Market Planning: Problems and Analytical Approaches (Englewood Cliffs, New Jersey: Prentice-Hall, 1979).

Acknowledgments

The authors thank Robert Fisher, Dennis Rook, Richard Staelin, and participants at the Fall 1993 ORSA/TIMS conference for their comments. This study was partly supported by a grant from the Marketing Science Institute.