Market Entry Strategies and Sustainable Competitive Advantage

Market Entry Strategies

and

Sustainable Competitive Advantage

Introduction and Purpose

The purpose of this lecture is to examine the factors that determine a firm's entry strategy into a given product market, along with its degree of success, and the requirements for sustaining a competitive advantage once in the market. By combining these two seemingly unrelated aspects of a firm's competitive behavior, it is hoped that the reader will recognize important relationships between them, and become aware that the strategies employed by the firms presently occupying a market, and those used by firms wishing to enter that market will impact each other. These strategies affect all of the firms involved in the particular competitive arena, and require that they initiate appropriate strategic actions. "Without examining a firm's strategic attributes in the market(s) where it actually competes with others, one has little idea against whom it competes directly: Many firms may not be direct or primary competitors because of a different market focus" (Chen, 1996, p.103).

Market Entry Strategies

Entry strategy refers generally to the timing of a firm's entry into a given product or geographic market, the magnitude and scope of its investment, and the area of its competitive emphasis in that market. A firm's market entry strategy is of critical importance, as experience indicates that initial competitive positioning determines a product's long-term product performance, with performance being defined as the degree of market success attained by a product at market maturity or the point at which product boundaries change.

While new products can make an important impact when they enter a market, research on failure rates shows that up to 80% of new product entries will fail. Factors influencing a new product's success include timing of entry, initial competitive positioning strategy, firm competencies (sources of advantage), prior entry experience, magnitude of investment, and the structural characteristics (ex. - seller concentration) of the given market. These are important in explaining a new product's performance in a market.

Timing of Entry

Timing of entry into a market is important, because at different times, the mix of competitors and customer expectations differ. A product introduced prematurely, without the characteristics need to maintain a long-term competitive position, is highly likely to fail.

Timing of entry is a continuous concept that includes real time, such as the number of months that have passed since the first firm entered the market, and the cumulative number of firms in the market at the time of the focal firm's entry. The greater the number of active competitors in the market at the time of entry, the larger the required investment by the entering firm.

Successful market entry isn't contingent on being the first or among the first to enter a market. While there are advantages to being the "first-mover", there are also advantages, at least in some markets, to being a "late mover". In new markets, the standardization of desired features and benefits may not yet be complete. As desired product features and customer expectations become better determined, later entrants can incorporate them into their product, having foregone expensive trial and development costs. Often, large firms, knowing that they can enter a market on the strength of their name, will wait until market uncertainty diminishes. This may also reflect their desire to avoid the cannibalization of earlier products introduced before the change in technology. Such delays may prove quite costly to late entrants.

The way one defines a pioneer is also important. Whereas a product pioneer is the first firm to develop a product, a market pioneer is the first firm to actually enter the market. Furthermore, the first firm to achieve a competitive scale of commercialization should be considered the true pioneer. This reinforces the notion that it is more important to develop the "right" product rather than create the first design. Positioning and quality are as important to a new product's success as the timing of its entry into the market.

Initial Competitive Positioning Strategy

Initial competitive positioning should an important consideration when selecting an entry strategy. Changes to a product's competitive positioning later on may be challenging and costly. In fact, a firm's market entries and exits, in and of themselves, are important to study, as they reveal how the firm defines and redefines its market positions and manages its market contact with other firms. "The macro-level competitive structure alters the interests and opportunities individual firms perceive, moderating their patterns of market entries and exits, which in turn cumulatively alter the competitive relationships among firms and the macro competitive structure for future periods" (Baum and Korn, 1996, P. 259)

Firm Competencies

Firm competencies, or strengths and advantages, must translate into strong sources of competitive advantage if entry strategy is to be effective. Sources of advantage include the superior skills and resources of the firm. They encompass inherent firm characteristics such as culture, organizational memory, difficult-to-imitate resource mixes or operating procedures, scale of manufacturing facilities, family brand names, the unique capabilities of management and personnel, prior entry experience, and number of years in business.

Prior Entry Experience

A critical and often unique source of competitive advantage held by some firms when entering a market is entry experience. This could refer to experience in this market, or experience in entering other markets. Prior new product entry success improves market entry skills and helps to establish market credibility. It may also result in superior performance due to the established relationships. These may result in brand loyalty, access to capital, and access to channels of distribution. If past experience involves interaction with the same customer category, buying motives and customer traits may be already understood.

Resources and firm experience both facilitate a firm's early entry into a market and help to establish positional advantage. Hopefully, these sources of advantage will result in superior product positioning, which manifests itself in greater customer value or lower relative costs to the consumer.

Magnitude