Timing of Entry


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Timing of Entry

  1. 1. Timing of Entry Dated : November 09, 2009 Timing of Entry MOTIS – Class of 2009-10 Innovation & Knowledge Management Report Prepared by Monika Andersen - Salim Gouasmia Abdullah Khan - Cristina Lorenzetti ESIEE Management – MOTIS 1/8
  2. 2. Timing of Entry Dated : November 09, 2009 Table of Contents Introduction.............................................................................................................................3 Entering a New Market ..........................................................................................................4 First & Second Mover Advantages & Disadvantages – iPhone & BlackBerry Compared.....5 Conclusion...............................................................................................................................7 Bibliography............................................................................................................................8 ESIEE Management – MOTIS 2/8
  3. 3. Timing of Entry Dated : November 09, 2009 Introduction Timing is a very important strategic tool for companies when launching a product. Although many would claim that being the first in the market is the best way to capture the market but there are arguments for and against. The timing of entry depends a lot on the Demand and Technology Uncertainty of any new product. 1 Initially, for any new product the technological features are always put to question. What will the product do? What will be its features? These questions are usually followed by Market/Demand uncertainty. Determining the segment, substitute and complementary products; all these become a part of the pre-launch discussion. When a new product is brought to a market, it takes some time for consumers to master the product. There is a learning curve attached which will determine the longevity of the product. It is very important for the producers to bring a product that is new and at the same time easy to use. Once the product is initially accepted in the market, the producers get the chance to learn and make the product efficient and effective. The fact on how much time it will take for competitors to react and come-up is a key element. The standard of the product, be it Open or Closed, has a role to play.2 Open standards tends to decrease profit appropriation, rival imitate easily, increases buyer power and supplier power due to lower switching costs and possible loss of control. Open standards also increase market acceptance. However, Closed Standards tend to generate more market share and thus, increases revenue but Government regulations and even non-Governmental Groups might put a barrier toward the growth of the product. That being said, the company strength always remains a key factor on how the product will be placed and accepted by the market. A tension always remains between Open and Closed standards affected by market acceptance and value appropriation.3 All these being said above, these are only the pre-launch situations that make the agenda of a boardroom. Depending on the culture and the situation of the company, a decision will be made on whether to enter the market as a first mover or follow the market when someone else have already made the entry and the company knows that there is a sure demand. In this paper, we will discuss a little about how a company enters the market and how the first or the second mover approach affect the success of the product. 1 Agarwal, Rajshree. Entry Timing, Standards Battles and Design Dominance. <http://www.business.illinois.edu/agarwalr/EMBA/Class%204%20Timing%20of%20Entry.pdf> 2 Ibid. 3 Ibid. ESIEE Management – MOTIS 3/8
  4. 4. Timing of Entry Dated : November 09, 2009 Entering a New Market There are always some risks involved when a company decides to expand its business into a new market. It needs to set the groundwork to make sure that the product is feasible and the timing is right to enter the market. The biggest obstacles a company faces during their “road” to the new market are the so called “entry barriers”4:  Size of investment  Advertising  Control of resources  Customer loyalty  Inelastic demand  Intellectual property  Vertical integration  Brand identity  Distribution channels’  Scale and experience economics  Government policies These are some of the points a company should consider before launching a product as the marketing plan can make all the difference in having a successful product or not. When a company doesn’t pay attention to all these factors, the risk is to incur in a failure. The market can be considered a real “competitive arena” where each company competes in order to be the best one. The right timing to market when referred to the competition level is very hard to set, if there is a high competition it can be difficult. On the other side if there is no competition it means that there is only one company/product in that market, it is the “unquestioned number one” 5 and it can be very hard or even quite impossible to have success. If we consider the timing related to the level of innovation, a company must be very careful of what is going on in the market, which products is there the biggest demand for and which ones is there no demand for. To introduce a product that doesn’t represent a need for the costumer is a big risk, since the direct consequence can be the total absence of sales that can lead to the product failure, a loss of money, a waste of time and, in the worst of cases, to the failure of the firm. 4 Langerak, Fred. Jan Hultink and Griffin, Abbie. Exploring Mediating and Moderating Influences on the Links among Cycle Time, Proficiency in Entry Timing, and New Product Profitability May 2008. The Product of Innovation Management. <http://www3.interscience.wiley.com/journal/120088945/abstract?CRETRY=1&SRETRY=0> 5 Ibid. ESIEE Management – MOTIS 4/8
  5. 5. Timing of Entry Dated : November 09, 2009 First & Second Mover Advantages & Disadvantages – iPhone & BlackBerry Compared When discussing innovation timing, there is the theory of the first mover and the second mover of an innovative product. Conventional wisdom and intuition suggests that if a company wants to win market share, it has to be the first to enter the market, correct? The first mover advantage theory states that the first company to enter a certain market will gain massive market share. In addition, if the company has developed a competitive advantage as well, it will also be able to defend its leadership position from new entrants. Furthermore, the first mover will have the ability to establish customer loyalty and thereby securing their position in the market, just as Harley Davidson has done. Moreover, a company can set the standards of the new market when it is the first one to enter it.6 If it only requires that a company must be the first on a certain market, then what is the problem? Even though you enter as the first one, it does not necessarily mean that you have figured out all the angles. For example, there is the high risk due to the demand uncertainty that a company has not fully accounted for as well as development costs that occurs when establishing a foothold in a new market. As a result, the second mover will not have the disadvantages of high development costs. In addition, the second mover will be able to learn the mistakes made by the first mover and be able to perform a new market research to improve satisfying customer needs. Furthermore, the second mover will also be able to gain time for Research & Development to develop a superior product. On the other hand, their ability to establish a brand loyalty is unlikely to happen as a second mover.7 However, this theory does not apply for all innovations and markets. Andrew Groove, Intel’s ex-CEO, argued that “The first mover and only the first mover, the company that acts while others dither, has a true opportunity to gain time over its competitors; and time advantage, in this business, is the surest way to gain market share”. Time is of the essence in the IT industry. Innovations are unlikely to happen when you enter as a second mover in the IT industry, since the IT innovations are becoming obsolete very quickly. If we look at the case of two of the biggest brands in the mobile communication industry: Apple's iPhone and RIM's Blackberry, we will see how both the first mover advantages (FMA) and second mover advantage (SMA) can work. Blackberry was the first brand that introduced mobile email that was compatible with the corporate requirements in 2002. Although based in Canada, Blackberry quickly became the market leader. Even though there have been other makers of smart phones before Blackberry such as the Palm, Blackberry was the first brand that integrated mobile communication, internet capabilities and corporate email 6 Roll, Martin. First-mover advantage and branding: Apple versus BlackBerry. October 07, 2009. Official Weblog for the book Asian Brand Strategy by Martin Roll. <http://www.asianbrandstrategy.com/2009/10/first-mover-advantage-and- branding.asp> 7 Agarwal, Rajshree. Op,cit. ESIEE Management – MOTIS 5/8
  6. 6. Timing of Entry Dated : November 09, 2009 into one simple hand held device. Blackberry's leadership on the smart phone market was in June 2007 challenged by Apple with the introduction of the iPhone.8 Despite competitors such as Motorola, Nokia, Sony Ericsson, and Samsung, that strongly imitated many of Blackberry's features in similar looking handsets, Apple did the completely unexpected thing. Apple created a completely new design with appealing features and design. The iPhone was very slim and handy with a large touch screen without a physical keyboard. Furthermore, unlike Blackberry, Apple realized the integration of a mobile phone, a music player, an internet browser, a digital camera, and a built-in GPS. In addition, the iPhone was connected to iTunes, Apple's online store to purchase music and movies. As a result, Apple not only improved what Blackberry had done, but also set a new standard within the smart phone market. Although it was Blackberry that created the industry standard for almost five years, iPhone seems to have changed those standards despite not having the first mover advantage. This leads to a couple of important questions:  Is the first mover advantage sustainable or only temporary? First of all, nothing is sustainable forever. Even companies such as IBM had to throw in the towel after years of industry dominance. However, sustainability is still very important for companies. Imagine if all strategies were easily copied, then the competition would be more than just complete as said in “marketing terms”, it will probably lead to a zero sum game, meaning that no one will make money. The first mover advantage clearly creates a very significant advantage. Early entry into a market allows early market penetration into different segments. Similarly, in this case, Blackberry was able to define the industry standard by being the first. However, iPhone not only matched those standards by including all the features that Blackberry offered, but also improved every single one of them. As such, innovation and customer insight helped Apple to redefine the standard in the industry. Now one can ask these questions:  Are the second movers meant to fail? Most certainly not.  How can companies carry out strategic initiatives to overcome the first mover disadvantages? Companies can undertake certain strategic initiatives to overcome competitors’ first mover advantages. As the example given above, Apple primarily matched the industry standard, but was also innovative at the same time. In conclusion, constant innovation helps a company to improve the status quo of an industry and allows it to overcome a competitor’s first mover advantages. In addition, building strong brands is a very important and necessary strategy. Despite Blackberry's first mover advantage, Apple's brand 8 Roll, Martin. First-mover advantage and branding: Apple versus BlackBerry. October 07, 2009. Official Weblog for the book Asian Brand Strategy by Martin Roll. <http://www.asianbrandstrategy.com/2009/10/first-mover-advantage-and- branding.asp> ESIEE Management – MOTIS 6/8
  7. 7. Timing of Entry Dated : November 09, 2009 equity was so strong with cult promotion, that it allowed the iPhone to overcome the first mover advantage of BlackBerry. Conclusion Entry timing can either make or break an innovation. According to a study made by Wiley InterScience regarding Product Innovation Management, market-entry timing depends on the new product's development cycle time, which is the elapsed time from the idea generation phase to the phase where the new product is ready for market introduction. To determine the right moment of entry, a firm needs to correctly balance the risks of early entry and the missed opportunity of late entry. Hence, proficient market-entry timing is therefore defined as the firm's ability to get the market-entry timing right, meaning neither too early nor too late.9 9 Langerak, Fred. Jan Hultink and Griffin, Abbie. Exploring Mediating and Moderating Influences on the Links among Cycle Time, Proficiency in Entry Timing, and New Product Profitability May 2008. The Product of Innovation Management. <http://www3.interscience.wiley.com/journal/120088945/abstract?CRETRY=1&SRETRY=0> ESIEE Management – MOTIS 7/8
  8. 8. Timing of Entry Dated : November 09, 2009 Bibliography • Socco, Daniel. First Mover Advantage Revisited. August 21, 2009. Innovation Zen. November 04, 2009. <http://innovationzen.com/blog/2006/08/21/first-mover-advantage-revisited/> • Agarwal, Rajshree. Entry Timing, Standards Battles and Design Dominance. December 28, 2007. November 05, 2009. <http://www.business.illinois.edu/agarwalr/EMBA/Class %204%20Timing%20of%20Entry.pdf> • Roll, Martin. First-mover advantage and branding: Apple versus BlackBerry. October 07, 2009. Official Weblog for the book Asian Brand Strategy by Martin Roll. November 05, 2009. <http://www.asianbrandstrategy.com/2009/10/first-mover-advantage-and-branding.asp> • Kaneshige, Tom. Why Apple Owns the High-End: First Mover Advantage. August 06, 2009. CIO.com. November 05, 2009. <http://www.cio.com/article/499151/Why_Apple_Owns_the_High_End_First_Mover_Advanta ge> • Claude-Gaudillat and Quélin V., Bertrand. Mode of Entry into a New Market: Does the Timing of Entry and/or Effect of Innovation on Competance Matter? 2006. Ceram.edu. November 05, 2009. <http://www.cio.com/article/499151/Why_Apple_Owns_the_High_End_First_Mover_Advanta ge> • Basher, Syed A. and Ahmed, Saber Mahmud. Externality and Timing of Entry in Oligopoly Models. 1997. Tufts University. November 05, 2009. <http://www.intertic.org/Theory %20Papers/Saber1.pdf> • Langerak, Fred. Jan Hultink and Griffin, Abbie. Exploring Mediating and Moderating Influences on the Links among Cycle Time, Proficiency in Entry Timing, and New Product Profitability May 2008. The Product of Innovation Management. November 05, 2009. <http://www3.interscience.wiley.com/journal/120088945/abstract?CRETRY=1&SRETRY=0> ESIEE Management – MOTIS 8/8