First-mover advantage (FMA) is the competitive advantage of the first notable company in a new market segment. First-movers have good chances to establish strong brand recognition, customer loyalty, and early control of resources ahead of their competitors.
First-movers generally gain advantage from:
- Technology leadership
First-movers can make their technology, product, or service hard to copy. For example, they can form an absolute cost advantage by reducing production costs. Also, they can apply for patents and copyrights that enhance their establishment.
- Control of resources
The first ones on the market can control limited and strategic resources, such as locations, raw materials etc.
- Switching cost
Customers often stick to the first provider who meets their needs and find changing brands costly and inconvenient. First-mover businesses can use this tendency to safeguard their position on the market. This is particularly important to companies that use business-to-consumer models.
Being the first in an industry may not always ensure an advantage. Market pioneers often need to educate their customers on the go. This means that each sale costs them more than it would in an established market. Also, first-movers’ mistakes can turn into benefits for later entrants. Miscalculations and costs can overweigh the first-mover advantage and lead to the success of second-movers with a more efficient approach.