Question

Which of the following are examples of first-mover advantage? [LO 9.6] a. You make an offer on a house. The seller can only accept or reject the offer. b. You and your roommate are dividing chores. The chores are written on slips of paper and drawn from a hat. You get to draw first. c. You are first in line to buy a raffle ticket. d. You can take vacation whenever you like, as long as no other employees are also scheduled to take vacation. You submit your vacation requests first this year.

Short answer

Option D is an example of first-mover advantage.

Step-by-step solution

Understanding First-Mover Advantage

First-mover advantage refers to the benefit or strategic edge gained by being the first to enter or act in a particular market or scenario. This advantage can manifest as a stronger market position, brand recognition, customer loyalty, or other competitive benefits.

Evaluating Option A

Consider option (a): "You make an offer on a house. The seller can only accept or reject the offer." In this situation, being the first to make the offer doesn't provide a strategic advantage, as the seller's options are limited to accept or reject. It doesn't create a competitive edge over others.

Evaluating Option B

Look at option (b): "You and your roommate are dividing chores. The chores are written on slips of paper and drawn from a hat. You get to draw first." Drawing first doesn't ensure an advantage; it's a random selection process and does not strategically benefit you in choosing better chores.

Evaluating Option C

Examine option (c): "You are first in line to buy a raffle ticket." Being first does not provide a strategic advantage in a raffle since the outcome is based on chance, not on the order in which the ticket was purchased.

Evaluating Option D

Consider option (d): "You can take vacation whenever you like, as long as no other employees are also scheduled to take vacation. You submit your vacation requests first this year." Submitting your vacation requests first provides a strategic advantage because it increases your chances of getting your preferred vacation dates before others can schedule theirs.

Key concepts

Strategic Advantage

Being the first to act in a particular market or scenario can provide a strategic advantage. This means that by taking an initial step, you are already ahead of others, giving you a stronger position to implement and reinforce your strategies. For instance, if you're the first to introduce a new product, you have the chance to set standards and dictate market trends. This can lead directly to stronger recognition among consumers and the ability to charge premium prices without immediate competition.
To put it simply:

• You're a trendsetter and others follow your lead.
• It's your game, and you get to set the rules first.

This often requires a lot of calculated risk, but with well-planned strategies come potentially great rewards.

Market Position

Having a first-mover advantage can significantly influence your market position. When you're first, your brand is often synonymous with innovation, quality, or trust. Consumers tend to remember the first product or service of its kind, making that brand part of their first impression.
This advantage can manifest as:

• Unique association with pioneering innovation.
• Instant customer recognition and recall.
• A dominant share of market voice and attention.

Securing a robust market position can deter new entrants since it becomes challenging for them to displace a well-established leader. However, maintaining this position demands continuous innovation and quality assurance.

Competitive Benefits

First-movers often enjoy various competitive benefits that help them maintain their lead in the market. One major benefit is reduced competition, at least initially, since you're the only player offering that particular product or service.
These benefits include:

• Building strong customer loyalty as they associate you as the go-to choice.
• Creating and enjoying economies of scale due to more extended time in the market.
• Having control over resources and supplier relationships unique to your offering.

These benefits make the initial investment and risk worth it as they position your business to be sustainably profitable.

Decision-Making Process

The decision-making process in leveraging first-mover advantage involves careful consideration of timing, resources, and long-term vision. Decisions need to be timely to not only enter the market first but also adjust swiftly to market feedback. Key components of the decision-making process include:

• Analyzing market readiness and ensuring there is a demand for your offering.
• Identifying the necessary resources and capabilities internally to sustain the initial advantage.
• Developing a comprehensive risk management strategy to handle unforeseen market challenges.

A successful decision-making process helps ensure that a business leverages its first-mover advantage effectively, setting a foundation for sustained success and innovation.