First to Market Theory
AGE OLD QUESTION
Business scholars throughout the planet keep asking the same question and have come to the conclusion that being first into the market place is preferable. Preferable to what? They say every product has a life cycle? What about milk? If that is true and many academia will classify products and services in order to make a point and simply lump them all together. Is this correct? Yes and No. From a theoretical standpoint you could argue either side and have ample data in business history to prove the conclusion you desired. But in essence I would have to say that products and services are much different from each other in so many ways. For instance the reason for the purchase, the valuation, of that service or product for the purchaser, even the delivery and so on. Now it can be argued that there are some products that come with services and the product is not valued by the consumer without the service end of the equation. Maintenance contracts, almost a form of insurance are one type. For let us say a copy machine or something of that nature.
Let us take a mobile service-based business model for this discussion. The reason being I am in the service business and have been for 27 years. http://www.washguy.com and www.carwashguys.com.
Is it important to be first in the market? Yes or No? We have been successful competitors at both in various regional markets. If I had to chose, many times depending on the market I would say, I would rather be second or third in a market, evaluate the competition, interview the customers, redesign and define my service, use bundling techniques, price point targets, use their basis for my differentiations, and of course capture their customers. It is far cheaper and more economical to enter a market and skip the high costs of introducing a new service, creating demand or needs where none either existed or was thought of before by the user of such services, or educating and entire market segment and trying to convince them why we had something they needed and could not live without.
So for those reasons I often prefer to take other companies clients by offering the consumer what they really want at a price they are more willing to pay or offering services so far superior that the customer felt impelled to switch. Try Sprints marketing for instance; "let me review your current long distance charges and let's see how much money we can save you?" Or better yet our Entrepreneurial legend of Europe Richard Branson. He was not really first at anything, just giving the consumer another choice and addressing their true desires. Does it work? Yes 50 brand names later, Virgin is a force to be addressed or relinquish the market share. This does not mean it works every time, but he can market to the consumers who have already chosen a certain service and simply offer them better. I talked with the marketing executives of Dominos Pizza at an International Franchising Association Conference and they discussed this phenomena with our team. Think of going into a country that never had pizza before and trying to convince them that they should all buy dough with melted cheese on top covered with other food items. They simply look at it and say I would rather have a Fajita Pita or worse what is this and why should I eat it? The first company in has to get everyone to try it and spend bu-co advertising dollars.
The second company in only has to offer the pizza once the countries citizens have decided, Hey this Pizza Thing with the cheese and stuff on it, is not all that bad after all. Much easier sell. See the point? And it has been played out over and over again and guess what, the aggressive agile company can easily move quicker and with better profits once the service or in this case the Pizza is accepted by the masses. Now does Pizza have a trend cycle? It is food, and last time I checked people were eating more not less, judging by the sponsorship paid to that girl who gave head to the President by Jenny Craig. Oh yah, Monica what is her name?
I have been watching this trend in markets and found more than ample opportunity to come in behind the spenders and simply take what we want as far as market share and leave the first in competitor to fight for the scraps we leave them. Chances are they have an exit strategy and when they feel their curve is declining jump out at what they feel is a mature market and take their gain or loss in some cases. Yet they fail to realize its full potential or maybe do not care and will look for another easy market or product line to enter, always trying to ride the up curve. Even if a company who is already in the market is a tough competitor, no matter, let us take Service Master. We would have nothing to lose as an entry into one of their markets and everything to gain. They on the other hand have nothing to gain only market share to lose. If they decide to fight and refuse to relinquish market share they must turn on the direct sales, advertising, and marketing efforts, thus expanding the market for us. So if they had a 15% market penetration and we were to take 2%, that leave them with thirteen percent.
To keep quarterly numbers they need to increase the total market available to both of us to 17%. Also keep in mind that 2% of the two percent will be for us at no charge. That is truly free simply for seeking their unsatisfied customers and switching them. Now they must differentiate us from them thus spend more in advertising, which in doing so advertise that we exist and their customers actually do have a choice, it is a no win situation for them? Hardly an attribute for being first to market in my opinion? Hardly an advantage at the point of an entrant, a strong second to market competitor. If a second to market competitor slips in a price war because we have a nearly zero advertising budget using theirs to generate our expansion, then we can charge less. Let us say they charge $1000 for a given service and 15% is in sales and advertising. That means we can automatically charge 15% less than they do for the same profits. Faster ROI too. Also we did not have to pay the original marketing to get the ball rolling either. Very good deal. Why market when they already have simply ask their customers for the order and charge the less price. If they cannot handle it they can exit the market or spend more money to keep ahead of us until their own energy works against them. Similar to the Art of Judo. Diplomacy is the art of letting someone else get your way.
So why attack the competition? It is not really an attack. It is imperative that as a franchisor I stay efficient to therefore use maximum leverage of available resources to help the franchisees, who invested in the business get their proper return to feed their families. So then, we have found that is far less expensive to take the competitions customers through superior service and lower or more fair pricing or bundling (what the customer many times feels is more important) than to ferret out new customers through blanket marketing of junk mail or telemarketing. So then why not simple forget the high dollar marketing unless of course you happen to be first in the market anyway.
This is also a strategy preferred by scholars as the best possible scenario. Take the lead and hold onto for as long as possible. We have been successful at this approach too. It requires a different approach. Since generally we are in the lead I cannot discuss our strategies for this scenario on the Internet, but trust me, we play to win, whether we are in the lead or are ready to overtake the leaders. It is important for those who can offer products or services in an open market to understand that the "First to Market Strategy" may not be the best strategy all the time.
"Lance Winslow" - If you have innovative thoughts and unique perspectives, come think with Lance; www.WorldThinkTank.net/wttbbs
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