Pioneer Advantage: Marketing Logic or Marketing Legend ...

Pioneer Advantage: Marketing Logic or Marketing Legend? Author(s): Peter N. Golder and Gerard J. Tellis Source: Journal of Marketing Research, Vol. 30, No. 2 (May, 1993), pp. 158-170 Published by: American Marketing Association Stable URL: Accessed: 20-05-2015 16:52 UTC

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PETERN. GOLDERand GERARDJ. TELLIS*

Severalstudieshave shownthat pioneershave long-livedmarketshareadvantages and are likelyto be marketleaders in theirproductcategories. However, that researchhas potentiallimitationst:he relianceon a few establisheddatabases, the exclusionof nonsurvivorsa,nd the use of single-informanstelf-reportsfor data collection.Theauthorsof thisstudyuse an alternatemethod,historicaal nalysis,to avoid these limitations.Approximately500 brandsin 50 productcategoriesare analyzed.Theresultsshowthatalmosthalfof marketpioneersfail and theirmean marketshare is muchlowerthan that found in other studies.Also, early market leaders have muchgreater long-termsuccessand enter an average of 13 years

after pioneers.

Pioneer Advantage: Marketing Logic or

Marketing Legend?

The subjectof orderof marketentry is criticalto firms' survival and success. Pioneering new markets is expensive and risky, but also potentially very rewarding. If pioneers have advantages in supplies, costs, information, product quality, product line breadth, distribution, and long-termmarketshare (Robinsonand Fornell 1985), firms may benefit from early entry. In contrast, if later entrantscan leapfrog pioneers with superiortechnology, positioning, or brand names, firms could be better off entering late (Lieberman and Montgomery 1988). Thus, the extent and nature of pioneering advantages need to be more fully understood.

Several studies have shown that pioneers have longlived market share advantages (Bond and Lean 1977; Lambkin 1988; Parry and Bass 1990; Robinson 1988;

*Peter N. Golder is a doctoral candidate and Gerard J. Tellis is Associate Professor, Graduate School of Business Administration, University of Southern California.

The authorsdeeply appreciatethe advice, encouragement, and valuable contributions of Gary Frazier, especially during the conceptual phase of the research. They thank Robert Fisher, Jeff Inman, Mike Kamins, Dennis Rook, William Robinson, Avu Sankaralingam, Dave Stewart, and participants at a USC seminar for their comments on a previous draft of the article. The article also benefited from the comments of Barton Weitz and four anonymous JMR reviewers. The authors gratefully acknowledge financial support from the Marketing Science Instituteand Univeristy of SouthernCaliforniaGraduateSchool of Business Administration and the generous provision of data by Simmons Market Research Bureau.

Robinson and Fornell 1985; Urban et al. 1986; Whitten 1979). Some researchers have interpretedthese studies as showing that first entrantsoften become market leaders. The cumulative evidence led Scherer (1985) to conclude that pioneer advantage is a general phenomenon. Though current research overwhelmingly supports the advantages of pioneering, three major concerns remain.

First, two of the main databases used for past research, PIMS and ASSESSOR (Urban et al. 1986), have a sampling bias from including only survivors (Day and Freeman1990). The exclusion of pioneersthathave failed may overstate the advantageof pioneers. Indeed, as time passes after a pioneer has failed, successful firms in the same market may come to regard themselves as pioneers.

Second, PIMS and ASSESSOR data rely on selfreports of single informants to classify pioneers. In the PIMS data, an informantin each business classifies it as one of the pioneers, an early follower, or a late entrant. In the ASSESSOR data, an informant in each firm provides the year it entered the market. Though surveys for these data may have at times contacted more than one informant, they did not collect multiple measures to assess reliability and validity. Such self-reported data by single informants present a potential measurement problem. Respondents, especially if newer employees, may not be well informed about the order of market entry, especially of older products that have existed for decades or longer. Self-perception bias may lead respondents in

158

Journal of Marketing Research Vol. XXX (May 1993), 158-70

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PIONEERADVANTAGE

dominant firms to classify themselves as pioneers. This bias may be one reason why 52% of firms in the PIMS data classify themselves as pioneers, including multiple competitors in the same product category (Buzzell and Gale 1987; Lieberman and Montgomery 1988).

Third, the PIMS definition of "pioneer" is inconsistent with the term's use by researchers. PIMS defines pioneers as "one of the pioneers in first developing such products or services" (Buzzell and Gale 1987, p. 260). PIMS does not identify thefirstfirm in each product category even though the researchers who used the PIMS data conceptually define a pioneer as thefirst entrant in a market. Therefore, PIMS data are capable of determining only an early entry advantage, not a pioneer advantage. This distinction is critical and not pedantic. For example, if certain early entrants can dominate markets by entering after pioneers in order to learn from the pioneers' mistakes, it would be inappropriateto classify their advantage as pertaining to the pioneer.

Researchers have advocated using new data and research methods to study pioneer advantage (e.g., Lieberman and Montgomery 1988). Different approaches can compensate for some of the limitations of previous research. Our study has three primary objectives.

1. To estimatetherewardsof pioneersaftercontrollingfor survivalbiasby studyingsuccessfulandunsuccessfupl ioneers.The studyexaminesrewardsin threeareas:success rate, marketshare,andmarketleadership.

2. To demonstratethe use of a new methodfor studying this phenomenon,historicalanalysis.

3. To providean objectivemeasureof the truepioneeror firstentranitn eachproducctategorybyusingthismethod.

In accomplishing these objectives, we hope to provide new insights on pioneering and order of entry. Previous studies (Robinson and Fornell 1985; Urban et al. 1986) addressed order-of-entry effects among only surviving brands. We examine the performance of both failed and surviving pioneers. In addition, we compare their performance with that of early and current market share leaders.

We first present the definitions, background, and method of the study. Then we report and discuss the results. We close with conclusions and implications.

DEFINITIONS

We define four key terms used in the study. -Inventor is the firm(s)thatdevelopspatentsor important

technologiesin a new productcategory. -Product pioneer is the first firm to develop a working

modelor samplein a new productcategory. -Market pioneer is the firstfirmto sell in a new product

category. -Product categoryis a groupof close substitutesuchthat

consumersconsiderthe productssubstitutableand distinctfromthose in anotherproductcategory.

More than one firm may be an inventor in a product category because many ideas and processes may be in-

159

volved in a completely new product. We provide a separateclassification for productpioneers because they are not always the same as the market pioneer, but are important players in new markets.

Our definition of "marketpioneer" is consistent with that of "pioneer" or "first mover" in other studies. Schmalensee (1982, p. 350) defined a pioneer as "the first appearance"of a brand in "a distinctly new product" category. Robinson and Fornell (1985, p. 305) defined a marketpioneer as "the first entrantin a new market" and Urban et al. (1986) defined the pioneer as the first product to enter the market. Lieberman and Montgomery's (1988) review concluded that the standarddefinition for identifying pioneers based on market entry was appropriate. We use an operational definition for market pioneers that is the same as the conceptual definition. In contrast, other researchers operationalized marketpioneers as early entrantsthat survive. Thus, our study addresses a slightly different issue. Because our study is primarilyaboutmarketpioneers, we use the term "pioneer" alone to mean "marketpioneer."

Product category has long been considered a somewhat ambiguous concept (Day, Shocker, and Srivastava 1979). Determining separate product categories is an empirical issue that may be resolved only in retrospect after the category develops. Our definition is consistent with research that has taken a customer orientation in

determining product categories (Day, Shocker, and Srivastava 1979; Loken and Ward 1990; Ratneshwar and Shocker 1991; Sujan and Bettman 1989).

The example of mainframecomputersmay clarify how our definitions apply. Much of the early research was done during World War II and many firms can be considered inventors. The product pioneer is widely regarded to be the ENIAC developed at The University of Pennsylvania. The market pioneer is Remington-Rand, which sold a Univac to the Census Bureau in 1951. IBM entered in 1953 with a sale to the government research facility at Los Alamos, New Mexico, and had established dominance by 1955 (Shurkin 1984).

BACKGROUND

This section summarizes the theories and evidence for and against a pioneer advantage. Our purpose is not to develop new theory or evaluate current theories, but merely to provide a background for our research.

Theories of Pioneer Advantage

We classify the theories that support pioneer advantage by whether the advantage is based on consumers or

producers. Consumer-basedadvantages relate to the benefits that

can be derived from the way consumers first choose and then repurchasethe product. Three of these theories have been fairly well developed. First, Schmalensee (1982) argues that when consumers successfully use the first brand in a new product category, they will favor it over later entrants because they know with certainty that it

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160

works. This reasoning is similar to the argument that consumers develop stable preferences for early entrants (Bain 1956). Second, Carpenter and Nakamoto (1989) use a slightly different rationale by applying learning theory to explain pioneer advantage. This theory argues that the pioneer influences how consumers evaluate attributes in the product category and that the pioneer may become the standardfor the productcategory.Third, Lane (1980) shows how firms that enter early and position near the center of the marketcan receive higher profits. Further, he shows how first entrants can earn large profits and still preventfurtherentry. Finally, a pioneercan "lockin" consumersin categoriesthathave high switchingcosts. Some of these consumer-based advantages may also apply to resellers (Alpert, Kamins, and Graham 1992).

Producer-based advantages refer to the benefits derived from the supply of the product, and are based on the concept of barriersto entry (Bain 1956). Robinson and Fornell (1985) and Urbanet al. (1986) considerthem to be major causes of pioneer advantage. For example, economies of scale and learningcould lead to lower costs for pioneers. Other importantadvantages are technological leadership (Gilbert and Newberry 1982; Lieberman and Montgomery 1988; Spence 1981) and preemptionof scarce assets (Lieberman and Montgomery 1988; Prescott and Visscher 1977; Schmalensee 1978; Spence 1977). Staying at the forefront of technology enables pioneers to consistently have better products than competitors. Also, when only a limited number of suppliers are present, long-term agreements can prevent them from supplying later entrants. Karakayaand Stahl (1989) review several other barriersto entry that contribute to the producer advantages of pioneers.

Evidence for Pioneer Advantage The evidence for pioneer advantage comes from three

sources: PIMS data, other private data, and the business

JOURNALOF MARKETINRGESEARCHM,AY1993

press. The majority of studies supporting pioneer advantage are based on PIMS data (Lambkin 1988; Lambkin and Day 1989; Parryand Bass 1990; Robinson 1988; Robinson and Fornell 1985). Table 1 summarizes their findings. Note that the market share of pioneers is consistent across all types of goods and firms. The weighted average market share of pioneers is 29%. For consumer goods (ParryandBass 1990; Robinsonand Fornell 1985), the weighted average market share is also 29%. The cumulative evidence from the PIMS data leaves little doubt of a substantial market share reward from pioneering. Similarly, the PIMS data also show that pioneers tend to be market leaders. Seventy percent of market leaders are pioneers, and almost half of all pioneers are market leaders (Buzzell and Gale 1987).

Three studies on pioneering have used other private data. Urban et al. (1986) demonstrateda strong pioneer advantage by using the ASSESSOR data. They found that the second firm to enter the market would obtain only 71% as much market share as the pioneer, and the third firm to enter would obtain only 58% as much. Using the assumptions in their article, Urban et al. (1986, p. 654) estimatedthe marketshareof pioneersto be 43.6, 35.7, or 30.8% with three, four, or five brands in a category. Their own database includes an average of 3.6 brands per category. They also point out the possibility of the pioneer failing after a second firm enters. However, they state, "We are not aware of the existence of this situationin the categorieswe studied"(p. 655). Bond and Lean (1977) carried out a longitudinal analysis of two prescription drug markets and found pioneers have a long-lived market share advantage. Whitten (1979) analyzed seven subcategories of the cigarette market to reach a similar conclusion.

One study reported in the business press (Advertising Age 1983) has often been used as evidence of pioneer advantage (e.g., Carpenter and Nakamoto 1989). This

Table 1

PIONEERSM' ARKESTHAREADVANTAGIEN THEPIMSDATA

Study

Robinson and Fornell (1985)

Consumer goods (n = 371) Robinson (1988)

Industrial goods (n = 1209) Parry and Bass (1990)

Concentrated industry Consumer goods (n = 437) Industrial goods (n = 994)

Nonconcentrated industry Consumer goods (n = 156) Industrial goods (n = 293)

Lambkin (1988) Start-up firms (n = 129) Adolescent firms (n = 187)

Pioneer

29 29

34 33 12 14 24 33

Market share (%)

Early follower

Late entrant

17

12

21

15

24

17

26

20

7

6

10

8

10

10

19

13

Advantage pioneer late entrant

17

14

17 13

6 6

14 20

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PIONEERADVANTAGE

study compares the ranks of market share leaders in 25 product categories in 1923 with their ranks in 1983 (see Table 2). Of these 25 leaders in 1923, 19 were still first, four were second, one was third, and one was among the top five in 1983. Theories Against Pioneer Advantage

The literature suggests at least seven reasons why pioneers may be at a disadvantage, some of which have been better developed as theories. Lieberman and Montgomery (1988) review fourfactors:free-ridereffects, shifts in technology, shifts in customer needs, and incumbent inertia. Additionally, improperpositioning, changing resource requirements, and insufficient investments may prevent the pioneer from capturing market leadership. We briefly review each of these factors.

First, free-rider effects are present when a late entrant can acquire the same technology at a lower cost. Fershtman, Mahajan, and Muller (1990) show that under some conditions, final market shares do not depend on order of entry because of information diffusion among firms. Similarly, a late entrant can also acquire more productive labor than the pioneer (Guasch and Weiss 1980). Second, good opportunities for successful late entry occur with technological discontinuities (Yip 1982). Late entrants can capture market leadership by implementing superior technology to produce a better or cheaper product before the pioneer. Third, shifts in consumers' tastes also provide opportunities for late entrants better positioned for such shifts than pioneers. For instance, since

Table 2

MARKESTHARERANKOF BRANDS:1923 VS 1983 AS PUBLISHEIDN ADVERTISINAGGE(1983)

Brand

Swift's Premium bacon

Kellogg's corn flakes Eastman Kodak cameras

Del Monte canned fruit

Hershey's chocolates Crisco shortening Carnation canned milk

Wrigley chewing gum Nabisco biscuits

Eveready flashlight batteries Gold Medal flour Life Savers mint candies

Sherwin-Williams paint Hammermill paper Prince Albert pipe tobacco Gillette razors

Singer sewing machines Manhattan shirts

Coca-Cola soft drinks

Campbell's soup Ivory soap Lipton tea Goodyear tires Palmolive toilet soap

Colgate toothpaste

1923 rank

1 1 1 1

1 1 1

1 1

1 1 1

1 1

1 1

1 1 1

1 1 1 1 1 1

1983 rank

1 3 1 1

2 2 1 1 1 I 1 1

I 1 1 1

1 top 5

1

1 1

1 I 2 2

161

the mid-1800s, new leadershave emergedin the soft drink category as the preferredflavor has changed from lemon to ginger ale to cola. Fourth, incumbent inertia may deter a pioneer from making the investments necessary to remain a marketleader. Such inertia may be profit-maximizing for a pioneer if the return on investment from market leadership is below that available elsewhere. In this case, the best strategy for a pioneer is to steadily harvestmarketshare(Liebermanand Montgomery 1988).

Fifth, late entrants may gain an advantage by positioning at the "ideal point" in attribute space if the pioneer has not done so and its costs of repositioning are high. Such a situation may occur if the ideal point becomes apparent only after the product is widely introduced. Sixth, pioneers may not have long-lived advantages if they are unable to adapt successfully to change. This situation occurs when the pioneer's competencies fail to meet the changes in demand, competitive threats, or the environment (Abell 1978). Seventh, pioneers may not be willing or able to commit the resources to succeed in new markets. For example, Chandler (1990) shows how the firm that commits resources for large-scale production, not necessarily the pioneer, tends to lead the market.

Evidence Against Pioneer Advantage

Scattered evidence, some of it indirect, may support some of the preceding theories. Some studies have not examined pioneer advantage specifically and others have not covered a broad cross section of goods. Therefore, the findings can be considered only suggestive of a pioneer disadvantage.

Glazer (1985) examinednewspapersin Iowa from 1836 to 1976. He found that in successful markets, first entrants survived longer than second entrants, but in all markets first entrants survived as long as second entrants. Another study examining 100 successes and 100 failuresfound thatthe advantagesof being "first-in"were almost equally balanced by the many pitfalls and disadvantages (Cooper 1979). In a convenience sample of Frenchindustrialproducts,Lilien and Yoon (1990) found lower market shares for first and second entrants and higher marketsharesfor thirdand fourthentrants.A case study found six markets in which pioneers were successful and six markets in which pioneers were unsuccessful (Schnaars 1986). Another study found that late entry by brandextensions was successful (Sullivan 1991). Finally, using PIMS data, Moore, Boulding, and Goodstein (1991) questioned some conclusions about the effect of pioneering on marketshare by treatingpioneering as endogenous rather than exogenous. Similarly, using reverse regression, Van Honacker and Day (1987) suggest thatpioneermarketshareadvantagesmay resultfrom superior performance ratherthan time of entry.

Summary

The precedingreview describes several theoriesfor and against pioneer advantage. However, the empirical evi-

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