Available via license: CC BY-NC-ND 4.0
Content may be subject to copyright.
89
* Faculty of Economics, University of Belgrade
JEL CLASSIFICATION: M10, M30
ABSTRACT: One of the most important
questions faced by business leaders in the
strategic management process is a choice of
timing to launch new product/technologies
and enter new markets. ere are two
options: to be a pioneer or to be a follower.
Both have advantages and risks. Pioneers
oen have higher protability, greater
market share, and a longer business life, but
the relative success of each strategy depends
on several factors, both internal and
external (pace of evolution of technology
and markets).
KEY WORDS: pioneer, follower, rst-
mover advantage
Đorđe Kaličanin* DOI:10.2298/EKA08177089K
A QUESTION OF STRATEGY:
TO BE A PIONEER OR A FOLLOWER?
COMMUNICATIONS
90
Đorđe Kaličanin
1. Introduction
e question of rst-mover advantage has long been a subject for intense
discussion by economists and business people. It is recognized that rst market
entry rewards pioneers, the main initial reward being the biggest market share
(Urban et al, 1986). is reward decreases over time as new rms enter, forcing
pioneers to take actions to increase and/or defend market share. However, market
share is oen not highly correlated with other important performance measures
(protability, survival, or sales growth) in new industries, and this has led to
changes in business strategy (VanderWerf, Mahon, 1997).
Historically the advantages of being a pioneer have been promoted to a much
greater extent than the risks (Lieberman, Montgomery, 1998). e actual outcome
depends on the initial resources of the pioneer, as well as on the resources
and capabilities subsequently developed in response to those of the followers.
Environmental change certainly provides opportunities to rst-movers, but
rms must initially possess the organizational skills and resources to capitalize
on such opportunities (Kerin et al, 1992). Additionally, the question of whether
to be a pioneer or a follower is of increasing importance in the modern Age of
Information/Uncertainty.
Speed of entry into any market is always of great competitive importance. Perhaps
an enterprise intends to develop a new product or a novel technology to generate
new products, creating a new industrial sector, or even a whole new industry.
Alternatively a company wants to be rst to invade a hitherto unexploited national
or regional market. In all cases, companies are trying to beat the competition.
is is supercially similar to an athletic contest, in which every runner tries to
nish rst, but in business, the race never ends. Competitive advantage has to
be continuously maintained. A temporary innovation-based monopoly has to be
transformed into a sustainable long-term process or product. However, there are
companies that consciously choose to follow, rather than innovate, believing this
to be a more advantageous strategy.
Pioneering and rst-move advantage can be achieved in several ways: 1) by
making new products, 2) by using a new process, or 3) by entering a new market
(Heiens et al, 2003). In all cases, pioneers create new market demand for their
products/services and continue to satisfy that demand before other enterprises
enter the same market. It has also been claimed that rst-move advantage can
be established by new advertising campaigns, initiating price changes, and the
adoption of new distribution techniques.
A QUESTION OF STRATEGY: TO BE A PIONEER OR A FOLLOWER?
91
e rst two cases (new product or new process) fall into the category of
technological pioneering. Technological pioneering refers to the development and
commercialization of an emerging technology in pursuit of prots and growth
(Zahra et al, 1995: 144). e third case is described as market pioneering, when
an enterprise with established products and technology is the rst to enter a new
market. Both technological pioneers and market pioneers, through their timing
and actions, are rst-movers. Other companies are followers. e latter can be
divided into early or late followers (or entrants). Early followers enter the market
soon aer the pioneer; late followers enter aer more time has elapsed.
In any company, the choice of whether to be a pioneer or a follower must be
incorporated in the strategic planning process. A pioneer strategy is compatible
with the choice of a broad or a focused dierentiation strategy. A follower strategy
is compatible with the choice of a broad or a focused low-cost strategy (analogous
to Kaplan, Norton, 2004).
2. Advantages and Risks of Pioneer and Follower Strategies
Pioneers gain advantage by making rst moves in technology, product or
marketing innovation. ese advantages are called rst-mover advantages. Other
enterprises are followers, they aim to maximize the late-mover advantages and to
minimize late-mover disadvantages.
First-mover advantages are: 1) owning the positive image and reputation of being
a pioneer, 2) reduction of total costs through control of new technology, and
supply and distribution channels, 3) the creation of a base of loyal customers,
4) having the ability to make imitation by competitors as dicult as possible
(ompson, Strickland, 2003: 193).
Pioneers try to make a competitive advantage through being rst in a new eld.
Building a competitive advantage is a time consuming process (time is the
horizontal axis on gure 1) and is called the build-up period. is period can
be minimized if an enterprise already has the necessary resources in place and
the customer response is positive and rapid. Build-up periods can be longer if
demand growth is weak, or the technology takes several years to perfect, or if it
takes time to establish manufacturing capacity..
e size of advantage is shown on the vertical axis. It can be large (as in
pharmaceuticals, where patents result in a substantial advantage), or small (as
92
Đorđe Kaličanin
in the fashion industry, where popular designs can be imitated quickly). Aer
the build-up period comes the benet period during which a company enjoys
the benets of competitive advantage. e length of this period depends on both
the responses of the followers and the success of pioneers in enhancing and
strengthening their position in the market. e overall magnitude of pioneer
competitive advantage depends on the extent to which followers: 1) benet from
the dierence between innovation costs and imitation costs, 2) exploit saving
innovation costs, 3) capitalize on the pioneer’s mistakes, 4) benet from economies
of scope, and 5) inuence/change consumer preferences (Kerin et al, 1992: 47). If
followers are successful, the period of competitive advantage erosion begins.
Figure 1. Building and Eroding of Competitive Advantage
(Source: ompson, Strickland, 2003: 186.)
Generally, the greatest rst-mover advantage is in being the market leader and
in maximizing early revenues from the products/services. anks to the initial
temporary monopoly from innovation, pioneers are in a position to charge
higher prices for their products, and thus maximise prots. is strategy is
popularly called “skimming the cream”. Pioneers can also create new sources
of revenue through licensing, but this generally produces the lowest rewards for
entrepreneurship.
In most cases, pioneers continue to hold the biggest market share even aer the
entry of followers into the same market. High protability can be maintained
through high entry barriers in the form of resource control (control of technology,
A QUESTION OF STRATEGY: TO BE A PIONEER OR A FOLLOWER?
93
locations, managers and key employees).Also, the inevitable learning curve can
positively inuence the pioneer’s market share. ese advantages are summarized
in the teachings of one of the greatest military theorists ever, Chinese general
Sun Tzu. Sun Tzu wrote: “Generally, whoever comes rst to the battleeld, and
awaits the enemy, will be rested; but, whoever comes last and has to gostraight
into battle, will be tired. So, one who is skilled in war constrains the others but is
not constrained by the others” (Cu Sun, 2005: 81).
High switching costs also benet the pioneer. ere is inevitably a cost to the
customer to switch to a follower’s product. Naturally, a pioneer has to continuously
improve his own product, in case followers oer an alternative whose enhanced
performance outweighs switching costs.
e main rst-mover disadvantages (Lieberman, Montgomery, 1988) are: 1)
free–rider benets to followers, 2) market and technological uncertainties, 3)
unforeseen changes in technology or customer needs, and 4) incumbent inertia,
which results in the gradual updating of existing technology, rather than the
adoption of new and improved technologies. Several factors inuence the size of
the risk in being a pioneer. For instance, R&D (research and development) costs
involved in innovation can be so high that they may not be recovered in revenues.
It is logical that the risks associated in a completely new product are greater than
those associated with incremental product changes (Min et al, 2006).
Another dicult task faced by pioneers is in creating primary demand for a
completely new - and non-branded - product. Educating customers about a novel
product can be very expensive. Nevertheless, pioneers usually have longer market
lives than their followers. In contrast, followers try to create selective demand, for
a specic brand. In their case, technological standard has been established by the
pioneer, hence they avoid these costs.
Bandwagon eects can increase the risk to followers. Bandwagons appear
when companies make strategic decisions - such as new-product development,
technological innovation, or even an acquisition - in response to the actions of
other companies (McNamara et al, 2008). Institutional bandwagon pressures
appear when non-adopters are pressured to mimic the actions of early adopters
to avoid appearing dierent. Competitive bandwagon pressures appear when
non-adopters fear they may be disadvantaged. Bandwagon companies oen base
decisions on informal information, ignoring criteria used in rational decision
making processes. Very oen heuristics are used, thus “company XYZ has an
excellent track record, so, if we follow them, we will not make a mistake”.
94
Đorđe Kaličanin
Networks are currently envisaged as company environments in which value for
customers is created. Consequently, when discussing new management challenges,
we compare how networks compete against networks, rather than companies
competing against companies (Cares, 2006: 40-41). is has implications with
respect to choice of pioneer or follower strategies. New products created through
eective cooperation of networked members are more likely to dominate new
markets. ere are also associated risks.
In the context of networking achieving pioneering advantages, consider
innovation ecosystems. Innovation ecosystems are forms of strategic alliances
focused on new technology and new product development. rough them, rms
combine their individual oerings (in the form of parts) into a coherent, customer-
facing solution (in the form of a nal product). e total risk in these innovation
ecosystems consists of initiative risk, interdependence risk, and integration risk
(Adner, 2006).
Initiative risk is a type of risk inherent in every new venture. ere are a lot of
unknowns with the launch of any new product or service, both technical (does
it do what it’s supposed to) and with respect to marketing (is it acceptable to the
customer).
Interdependence risk is associated with the uncertainties of coordinating the
relevant contributors. We can estimate the joint probability that dierent partners
will be able to satisfy their commitments within a specic time frame. For
instance, suppose that each of three suppliers has a 0.9 probability of success in
developing a part of the whole product. In that case, the probability of launching
the new product on time is 0.66, or 66%. is probability is the product of the
probabilities for successful completion of every partner, i.e. 0.9 x 0.9 x 0.9.
e nal type is integration risk. It is concerned with the uncertainties in the
adoption process across the value chain. Time is required for all intermediaries
in value chains to become aware of the product, sample it, and make orders.
Logically, the more intermediaries, the bigger the integration risk for customer
acceptance and loyalty. For instance, a at-screen TV manufacturer needs eight
months to bring a new screen to production. End consumers need four months
to become aware of a new product before they start to buy it in signicant
numbers. Realistically, suppliers need six months to develop inputs for at-screen
manufacturers. If we add two months for the distributors to stock the product
and train the sales force, the integration period will be 20 months (8+4+6+2).
If a at-screen manufacturer is able to allocate additional resources and reduce
A QUESTION OF STRATEGY: TO BE A PIONEER OR A FOLLOWER?
95
development time by 50%, a saving of four months will be made. Now, the total
integration period will be 16 months (4+4+6+2), and there is a greater chance of
achieving the product-launch target.
3. Conditions for Implementing Pioneer and Follower Strategies
e resource-based view of companies is a concept oen explored in the search
for competitive advantage. is holds that competitive advantage is a positive
consequence of the exploitation of resources that are valuable, rare and dicult
to imitate. How long it lasts, is not simply a question of time ow, nor is it strongly
connected with the patent period. e time competitive advantage lasts is a
function of the time spent creating a pool of superior resources. e resources
needed for a pioneer to succeed are dierent from those required by a follower.
In the case of technology, success oen depends on radical changes, which
are frequently the consequences of scientic discoveries. Accordingly large,
nancially-strong companies with well developed and funded (R&D) programmes
are best positioned to be technological pioneers.
However, great technological pioneering will only gain market leadership if it is
followed by successful commercialization. Innovative technological pioneering
and market leadership do not always go hand-in-hand. Examples of success include
Gillette in safety razors and Sony in personal stereos. But other companies failed
in the commercialization of technological innovation, e.g. Xerox in fax machines,
eToys in Internet retailing (Suarez, Lanzolla, 2005), Bowmar in calculators, and
EMI in scanners (Mittal, Swami, 2004). Examples of followers gaining greater
market share than pioneers include Seiko in quartz watches, and Matsushita in
VHS VCR (Mittal, Swami, 2004).
Market leadership for pioneers is a consequence of temporary monopoly based
on innovation. is needs to be defended and improved by carefully formulated
and implemented strategies for innovation, distribution, pricing and promotion.
Increasing investment in advertising and price cutting are the most frequently
used ways of retaining market share (Urban et al, 1986). If a technological
pioneer lacks marketing competencies, early followers will soon erode the initial
advantage.
In contrast, the critical success factors for followers are strong competencies in
production and marketing. Followers can gain advantages in cases when they
96
Đorđe Kaličanin
possess valuable assets, when learning curve eects are not crucial for prot,
when customers have lower switching costs, and when the market is growing
slowly. Clear positioning and strong promotion are essential for the market
success of followers.
Some followers invest signicant amounts of money in R&D, but, unlike pioneers,
investment is narrowly focused into areas giving the best returns. Michael Dell
has said that Dell’s R&D strategy is shareholder focused. R&D projects result in
product characteristics valued by customers who are prepared to pay for them.
ose companies who invest in things that are technically interesting, but not
valued by customers, are “over-inventing” (Stewart, O’Brien, 2005).
e choice whether to be a pioneer or a follower is strategic decision. e correct
approach is to start by accurately establishing the current and future internal
capabilities of the company. e choice depends on the likely length of rst-
mover advantage. is period is determined not only by the internal resources
of the company but also by industry dynamics (Suarez, Lanzolla, 2005) or
environmental dynamics (Suarez, Lanzolla, 2007). Industry (environmental)
dynamics are created by the interaction of two important factors: the pace of
technological evolution and the pace of market evolution. Both factors are
external and beyond the control of any single company.
e pace of technological evolution refers to the number of performance
enhancements with time. Some technologies, such as computer processors,
evolve in series of incremental improvements. Other technologies, such as digital
photography evolved in sudden, disruptive bursts, with little or no connection
with earlier technology (digital photography actually started to displace lm).
Regarding the pace of technological evolution, the faster or more disruptive it is,
the more dicult it is for any enterprise to control.
e pace of market evolution refers to market penetration - the number of
customers who bought the product in a specic time period. e market for
automobiles and xed telephones evolved more slowly than the market for VCRs
and cellular telephones. Fixed telephones took more than 50 years to reach 70% of
households. Cellular telephones achieved the same level in less than two decades
(Suarez, Lanzolla, 2005: 123). Regarding the pace of market evolution, the greater
the dierence between old and new product, the greater the uncertainty about
the pace of market growth and the number of market segments.
A QUESTION OF STRATEGY: TO BE A PIONEER OR A FOLLOWER?
97
e combined eects of market and technological change determine a company’s
chances of achieving a rst-mover advantage (see the gure 2).
Figure 2. e Combined Eects of Market and Technological Change
(Source: Suarez, Lanzolla, 2005: 124)
ere are four possible combinations. “Calm Waters” represents the situation
where both technology and market grow slowly. e gradual evolution of both
factors allows pioneers to create long-lasting dominant positions. e slow pace of
technology evolution makes it dicult for followers to dierentiate their products.
e slow pace of market evolution helps pioneers to create, defend and develop
new market segments. Scotch tape is an original product of the very innovative
company 3M, which has maintained rst-mover advantage. For this combination,
resources are of less importance for defending competitive advantage. One of
the more relevant is brand, others may be physical assets, location and nancial
resources.
When “the market leads, and technology follows” describes situations where the
technology evolves gradually but the market grows quickly. It is very likely that
rst-mover advantage will be short-lived (as in the case of Howe sewing machine,
aer Singer entered the market). First-mover advantage can be through superior
98
Đorđe Kaličanin
design, marketing, branding and capacity production (using all these strategies,
Sony maintained a long lasting advantage with the Walkman, the rst personal
stereo).
When “technology leads and the market follows” is the situation where the
market evolves gradually but the technology evolves rapidly. Success in these
circumstances requires signicant R&D eort backed by strong nances. is
is exemplied by digital cameras. Sony launched the rst digital camera, the
Mavica, but sales remained stagnant for a decade. Aer many performance
upgrades, sales nally started to increase. roughout this period Sony kept a
leadership position in the USA market.
“Rough waters” describes situations where both the technology and the market
evolve rapidly. Sustaining rst-mover advantage is very dicult as it requires
superior resources in R&D, production, marketing and distribution. In this
situation pioneers become vulnerable very soon. A good example is the case of
Netscape, the rst Internet browser created in 1994. Today, Microso Explorer
is dominant. However, Netscape created wealth for its shareholders, since AOL
paid around $10 billion to the owners. On the other hand, Intel is an example of
a company that has strongly defended its leadership position, through signicant
and focused investment into resources, as well as acquisitions.
From the above, we can conclude that, in some situations, the creation of rst-
mover advantage can be time-consuming, expensive and ultimately unsustainable.
In such situations, it is wiser to be a follower.
e success of market pioneer strategy, in the sense of rapid penetration of a
new market before competitors, depends on identication of challenges and
risks specic to the targeted market. is includes analyzing company resources,
predicting market growth, and forecasting future relationships with competitors.
e emphasis today is on emerging markets, those markets inside states that have
accepted the economic model of developed countries in the past few decades.
China, India and Brazil are the largest, but similar characteristics are found in
the Southeastern European countries, including the Republic of Serbia.
Emerging markets are characterized by uncertainty. Pioneers have to minimize
those uncertainties and prots are oen less than in other markets. Followers
usually enter when market conditions stabilize, the infrastructure is in place and
customers educated. One way to minimize the risk is to enter through a joint
A QUESTION OF STRATEGY: TO BE A PIONEER OR A FOLLOWER?
99
venture with a local partner. Such partners can possess important resources, such
as knowledge of local markets and distribution channels (Cui, Lui, 2005).
Successful penetration of emerging markets oen depends on the image of the
country of origin of the pioneer. Customers are usually prepared to pay a premium
for products which come from developed countries with high reputations,
especially the USA, Japan or Germany (Gao, Knight, 2007). is preference is
most marked for products associated with a specic country, e.g. Swiss watches
or Scotch whiskey. Country images are not the creation of individual companies,
but rely on the concerted eorts of national government agencies and individuals
over a long period.
4. Conclusion
e process of strategic business planning consists of making a series of choices:
generic strategy, method of growth, diversication strategy, product-market
segment selection etc… One of the most important is the choice of timing or
market entry - when to develop and commercialize new products and technologies
and when to enter new markets. ere are two options: to be a pioneer or to be
a follower. Followers also have to decide whether to be early or late entrants. All
options have advantages and risks. Research suggests followers may fare slightly
better than pioneers but, logically, the outcome should depend on the specic
characteristics of each new market (Lieberman, Montgomery, 1998:1122).
e magnitude and durability of pioneer competitive advantage drives rst-
mover strategy. In most cases, pioneers enjoy benets in the form of a greater
market share; but market share is only one performance measure. Planners must
also consider other, possibly more relevant, factors such as protability, or sales
growth. Concentrating on shareholder focus and value-based measurements will
increase the chance of making the correct strategic choice.
Most current strategic management approaches emphasize the importance of
possessing strong internal resources and competencies for implementation. e
resource-base determines choice of strategy. A pioneer strategy implies greater
R&D and nancial resources. A follower strategy implies strength in marketing
and production. is is of great importance when allocating limited resources.
Understanding internal resources and competencies is the rst pillar or strategic
analysis.
100
Đorđe Kaličanin
e duration of the rst-mover advantage period depends on both internal and
external factors. e latter are beyond the control of any single enterprise. An
understanding of external constraints on entry order and lead times is the second
pillar of strategic analysis. Two external factors are especially important: the
pace of technological change and the pace of market evolution. Rapid changes
in both generally reduce the period of rst-mover advantage. In the current
Internet era, both technological and market evolution happen almost in real
time. Internet-based technologies promote the emergence of new businesses and
the transformation of old. is constant creation of market entry opportunities
presents new challenges for strategic management in the 21
st
century, and potential
areas for future research.
Adner, R., (2006), “Match Your Innovation Strategy to Your Innovation Ecosystem”, Harvard
Business Review (April): 98-107.
Cares, J., (2006), “Battle of the Networks”, e HBR List: Breakthrough Ideas for 2006, Harvard
Business Review, pp.40-41.
Cu Vu, Sun., (1952), Veština ratovanja, Vojno delo, Beograd (translation)
Cu, Sun., (2005), Sveobuhvatno umeće ratovanja, Alnari, Beograd (translation)
Cui, G. and H. Lui (2005), “Order of Entry and Performance of Multinational Corporations in an
Emerging Market: A Contingent Resource Perspective”, Journal of International Marketing, Vol.
13, No.4, pp.28-56.
Frawley, T. and J. Fahy, (2006), “Revisiting the First-Mover Advantage eory: A Resource-Based
Perspective”, e Irish Journal of Management, pp. 273-295.
Gao, H. and J. Knight, (2007), “Pioneering Advantage and product-country image: Evidence from
an Exploratory Study in China”, Journal of Marketing Management, Vol. 23, No 3-4, pp.367-385.
Gilbert, J.T., (1994), “Choosing an Innovation Strategy: eory and Practice”, in: ompson, A.A.
and A.J. Strickland III, (1998), Readings in Strategic Management, tenth edition, McGraw-Hill,
Boston
LITERATURE
A QUESTION OF STRATEGY: TO BE A PIONEER OR A FOLLOWER?
101
Heiens, R., Pleshko, L. and R. Leach, (2003), “Examining the Eects of Strategic Marketing
Initiative and First-Mover Eorts on Market Share Performance”, e Marketing Management
Journal, Vol. 14, Issue 1, pp.63-70.
Kaplan, R.S. and D.P. Norton., (2004), Strategy Maps: Converting Intangible Assets into Tangible
Outcomes, Harvard Business School Press
Kerin, R.A., Varadarajan, P.R, and R.A. Peterson, (1992), “First-Mover Advantage: A Synthesis,
Conceptual Framework, and Research Propositions,” Journal of Marketing, Vol. 56 (October),
pp.33-52.
Lieberman, M.B. and D.B. Montgomery, (1988), “First-Mover Advantages,” Strategic Management
Journal, Vol. 9, No. S1, 41-58.
Lieberman, M.B. and D.B. Montgomery, (1998), “First-Mover (Dis)Advantages: Retrospective and
Link with e Resource-Based View,” Strategic Management Journal, Vol. 19 (December), 1111-
1126.
McNamara, G.M., Haleblian, J. and B. Johnson Dykes, (2008), “e Performance Implications
of Participating in an Acquisition Wave: Early Mover Advantages, Bandwagon Eects, and the
Moderating Inuence of Industry Characteristics and Acquirer Tactics”, Academy of Management
Journal, Vol. 51, No. 1, 113-130.
Min, S., Kalwani, M.U. and W.T. Robinson (2006), “Market Pioneer and Early Follower Survival
Risks: A Contingency Analysis of Really New Versus Incrementally New Product-Market”, Journal
of Marketing, Vol. 70, (January 2006), pp.15-33.
Mittal, S. and S. Swami, (2004), “What Factors Inuence Pioneering Advantage of Companies?”,
Vikalpa, Vol. 29, No. 3, (July-September), pp.15-33.
Stewart, T.A. and L. O’Brien, (2005), “Execution without Excuses, Interview with Michael Dell
and Kevin Rollins”, Harvard Business Review (March): 102-111.
Suarez, F. and G. Lanzolla, (2005), “e Half-Truth of First-Mover Advantage”, Harvard Business
Review, (April): 121-127.
Suarez, F. and G. Lanzolla, (2007), “e Role of Environmental Dynamics in Building a First
Mover Advantage eory”, Academy of Management Review, Vol. 32, No.2, 377-392.
ompson, J. and A. Strickland, (2003), Strategic Management: Concepts and Cases, McGraw-
Hill/Irwin
Urban, G.L., Carter, T., Gaskin, S. and Z. Mucha, (1986), “Market Share Rewards to Pioneering
Brands: An Empirical Analysis and Strategic Implications,” Management Science, Vol. 32, No.6,
645-659.
102
Đorđe Kaličanin
VanderWerf, P.A. and J.F. Mahon, (1997), “Meta-Analysis of the Impact of Research Methods on
Findings of First-Mover Advantage,” Management Science, Vol. 43, No.11, 1510-1519.
Zahra, S.A, Nash, S. and D.J. Bickford, (1998), “Transforming Technological Pioneering into
Competitive Advantage”, in: ompson, A.A. and A. J. Strickland III, Readings in Strategic
Management, tenth edition, McGraw-Hill, Boston
