Early followers in new markets reap higher profits than late entrants, study concludes

Early followers - manufacturers who launch into markets soon after pioneers - tend to produce better short term profits than late entrants, a study by Dr Scott G. Dacko of Warwick Business School concludes.

Dr Dacko, a lecturer in marketing and strategic management, based the findings on his seven-year study of low-fat food manufacturers who adopt a non-pioneering approach and on numerous other studies of market entry timing and strategy. A summary of his work is published today in a paper entitled Timing It Right, part of the Hot Topics series from Warwick.

Timing was not the only factor influencing short term profitability. In the low-fat foods study those with high quality ratings and accompanied by higher overall marketing investment also had significantly greater levels of short term profitability. Interestingly, these products were also often accompanied by lower advertising levels, a factor that contributed to their profitability.

Early followers' products also enjoyed higher profitability over the long term, though the timing effect was less marked. Again, firms that introduced high quality products and had a higher overall marketing investment produced higher profitability, as did those who increased their marketing investment over time.

What does it take to be an early market entrant? Dr Dacko identified four critical information processing capabilities early entrants possess and excel at:

• sensing new information, for example about pioneering new products;
• processing information so that decision makers could assess the company's interest;
• deciding on information in a way that enabled new product development to take place;
• acting on information to respond to market demands with new products.

Dr Dacko said, "To plan on being early, a high level of functional and process readiness within the firm is needed, plus top management commitment, a willingness to take risks, and even to cannibalise one's own products."