Iv greater profit potential as a first mover a firm

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iv. Greater profit potential as a first mover ( a firm that is first to market in some manner) Competitive advantages sometimes emerge for first movers. These include: 1. Customer loyalty and brand recognition 2. Can possibly develop high switching costs ( costs associated with changing from one producer to another) 3. The first mover can generate a level of comfort and support in its customers that will discourage sales to competitors. (“No one was ever fired for specifiying IBM” – IBM generated comfort in an uncomfortable environment) b. Factors that Discourage Innovation i. First movers incur costs in educating the market that a follower, especially a fast follower, can avoid paying and yet use to advantage. 3-2
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ii. The time required for internally developing a technology to the point of marketability is greater than the time required to purchase it. This time difference can be in the order of years. iii. There is a greater risk of failure to develop the right product at the right time for the marketplace. If the wrong technology is embraced, a firm can fail as a result. (Example: The disruptive technology of the back hoe vs larger and larger mechanical shovels) iv. Firms in rapidly changing industries must be generating new technologies on a continuous basis. Keeping a pipeline of new products and/or processes is difficult. There is always the danger that competitor will generate a new innovation faster and enter the market first. V. Types of Innovation—innovations can be classified in a number of ways. Innovation may be of two separate but interrelated types – product innovation and process innovation. If one were to innovate with a new product, it would become quickly necessary to develop new processes to produce and market the new product. a. Product Innovation-- For most firms, product innovations are the center of their research and development (R&D) efforts. i. Three types of product innovation efforts 1. Basic research— involves the creation of new knowledge as opposed to new products. It is riskiest but has the potential for the great reward in the development of entirely new products or completely new ways of doing business. One must pay close attention to corporate mission and goals when doing basic research. 2. Applied research— utilizes the knowledge developed by basic research to create new products. (see figure 3.1.) The purpose of applied research is to add value to the firm and its customers. It is possible that the results of applied research can enable the firm to change its strategic position within an industry, and yield a sustainable competitive advantage. 3. Systems integration—involves existing products. It is aimed at supporting improvements in established products or opening new markets with an existing product. This type of innovation has low risks and 3-3
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rewards. However, not “tweaking” products can lead to strategic disadvantage.
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  • Fall '19
  • a. product innovation

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