What’s The Rush?

Hurrying to market may not give companies the advantage over the long term.

By Greg Kitzmiller

Rushing to market can sometimes lead to failure and does not always guarantee financial success. In fact, statistics show that hurrying to be first to market does not lead to a long term advantage in terms of the bottom line. Still dozens of managers believe that being first means “winning.”

In a study of 55 years of business results, William Boulding and Markus Christen found that return on investment was lower for firms that were first to market than for firms that entered later (Harvard Business Review, page 20, Oct. 2001). Pioneers often generated higher revenue but their rush added substantial incremental cost that created a disadvantage over time.

As a current example, there appear to be a number of products rushing to take the place of ephedra. Yet, many of those products are reported to have some of the same side effects as ephedra. Replacing a stimulant with another stimulant may be foolhardy when looking at it from a long term perspective. Although some firms may be first to market, it is not clear whether they have a long term strategy or a clearly defined benefit.

First & Second Movers

Firms must consider a sustainable differential benefit. In other words, customers must see a reason to continue to buy a particular brand of a given product. There has been a lot published about “first mover advantage” and subsequently about “second mover advantage.” The theory of “first mover advantage” is usually based on the advantage of building brand awareness and brand loyalty. Here the theory holds that the first-to-market firm gains by getting trial of a product, securing customer loyalty and giving customers little reason to switch to any other brands that enter later. Thus the first “in” secures and keeps customers. However, if a firm fails to deliver a sustainable differential benefit, why would customers stay with it?

The theory of “second mover ad­vantage” is based on taking advantage of errors made by the first mover brand, allowing a market to develop and securing customers who either are dissatisfied with the first market entry or who have not moved to a stage of trial yet. In this case, the second firm “in” takes advantage of a growing market, provides something to customers that the first firm failed to do and captures more customers over time. Of course, the same rules apply. If the second firm does not provide enough benefits and the market really does not grow then there is no advantage to this theory either.

Either theory can work. In fact, Mr. Boulding and Mr. Christen found that firms often did establish a revenue advantage by being first to market, but they also rushed to the point of creating a cost disadvantage, mostly for the long haul. Consider the option to take time to create a sustainable differential benefit and to do so with a cost structure that allows an optimum long term return on investment. In any market, gaining and keeping customers leads to the MOST success. Time is often not as important as other factors including consumer benefit, communication of a benefit and product availability.

Neither Dasani nor Aquafina were the number one or two brand of bottled water in the U.S. However, they occupy the number one and two market share positions through the marketing muscle of Coca-Cola and Pepsi, which gave these firms a sustainable benefit—in this case, the benefit to consumers is for them to be able to find these brands nearly everywhere.

Taking Time to do it Right

It is well known that Benecol margarine has not been a tremendous success for Raisio. One of the key points in reviewing a case study of Benecol is that Raisio felt pressured to rush to market. Raisio knew Unilever was planning to enter the market with its similar Take Control brand of cholesterol-lowering margarine, so Raisio wanted to get to market first with its product. This hurrying to market led to some of the strategic decisions for Benecol, including choosing J&J (a firm with less food experience) to promote and sell it, as well as pricing its product substantially higher than other margarine products. It also ran into issues with the FDA. Looking now at the situation with a long term perspective it is difficult to believe that Raisio was pressed by the need to rush to market. Its latest annual report shows it’s still not making money on Benecol and the product has clearly not developed as they expected.

In this case, there appears to be no first to market or second to market advantage as both Benecol and Take Control are high priced and the category of “enriched margarines” has not been well established or well promoted. J&J pulled advertising plans soon after the launch, at the point where the initial forecasts were highly questionable. Whether a category of enriched margarines develops or not remains to be seen.

Time does matter. It would not be prudent to suggest that all strategic decisions and product launches have the luxury of taking as much time as needed. Indeed, there has been great effort to shorten product launch cycles in our ever-competitive world. It makes sense to accelerate a product launch when a firm has strong information ,such as test market results, that clearly shows a sustainable differential benefit. However, it does not make sense to accelerate a launch based on what a competitor is doing.NW