First mover advantage takes place basically when the company decides to launch a completely new product and creates a new market for its products. “The first mover, according to recent theory, can expect to have its market locked up because consumers will be locked in, since consumers will face a high switching cost to move to second and later comers.” (McKenzie, 2001)
This requires extensive spending and investment in terms of technology development, acquisition of technology, setting up of the production and disbursement faculties as well as the research and development costs for developing a new product. (Frawley & Fahy, 2006) Aside from the costs for marketing and advertising of such products is also very extensive as the market has to be introduced and made aware of the products, therefore creating a need for the product.
The benefits however that are available to company when opting for the first mover based market entry strategy include control on the regulation of the market and domination in the market in terms of the pricing of the product. The company is able to set the standard for operation, service level agreements as well as the product itself in the market. Moreover the company can lead and set the price as well as attain a higher market share for the product, which can result in generation of abnormal profits.