2008 research by Boulding (Insead) and Christen (Duke University) means business strategists considering going into a market first should honestly assess the likely sustainable benefits to price and volume – the revenue side – because on the cost side there are mostly cost disadvantages from being the pioneer.
In fact, most of the research in this field tells us to be very wary about the cost of being first in to a new market. Yes, there are lots of ‘strategic benefits’, but it will cost you.
Boulding and Christen found that while production costs may benefit from the learning effect – pioneers get ahead of the pack – the rest is mostly bad news for the early entrants, saying “Overall, all one can say is that, on average, there is a pioneering cost disadvantage.”
The first mover’s costs of selling are not necessarily lower: in those sectors where customers were proactive in understanding their supply options, the first mover couldn’t maintain any advantage ie no credit is given by the customer for being the first one out. The exception was that selling an ambiguous product in a consumer market may enable you to ride some marketing and sales advantages.
The Boulding & Christen research written up in Marketing Science. Jul/Aug2008 is a useful reminder to not get carried away with the excitement about being the first into the market. Because you might end up paying the price.