First Mover or Follow-on?

The concept that being the first company (or division, or corporation, or individual, etc.) to adopt a new business model, start using a new technology, or move into a new product category contains inherent risks should be immediately obvious even to readers who have never studied business. For that first company (sometimes called a “First Mover”) there is no experience to fall back on; no way of knowing whether the technology will work, the products will sell, or the business will turn a profit. Strategically, of course, there are some inherent advantages in being the first company into a new market segment, not least of which is that if you are the only ones making that product, you are also the only ones who can sell it or make money doing so. But a lot of companies prefer to take the position of waiting to see if the product is going to be a success, before they move into the market with their own version. And sometimes they will do better than the firm that originated the category…

Several very familiar examples can be found in the American brewing industry, due in large part to the ongoing rivalry between Miller Brewing and Anheuser-Busch. It began in 1982, when Anheuser-Busch introduced Bud Light to compete with Miller’s Miller Lite (Bud Light now sells three (3) times as much), and has been repeated with non-alcoholic beer (Miller’s Sharp’s followed by Anheuser-Busch’s O’Doul’s) and lime-flavored light beers (Miller Chill followed by Bud Light Lime). It’s hard to argue that this strategy has worked out very well for Anheuser-Busch, especially considering that 1 year after its introduction their Bud Lime Light is out-selling the first-mover product eleven to one, according to this article in the St. Louis Post-Dispatch. But according to the same article, the wars are about to start up again, with the introduction of “Select 55” ultra-light beer to complete with Miller’s “MGD 64”…

By the sort of odd coincidence that only happens in blog posts, bad movies and real life, I happen to know the executive who was in charge of marketing for Anheuser-Busch when they invented the first “ultra-light” or low-carb beer, called Michelob Ultra. At the time the idea was a total flop, since most of the demographic of people who drink beer did not overlap with the demographic of people who wish to reduce their carbohydrate intake. But then came the Atkins Diet, the South Beach Diet, and all of the spin-off diet methods, and suddenly even people who didn’t know exactly what a carbohydrate was were trying to consume fewer of them. Michelob Ultra is now selling approximately 3.5 million barrels a year (that’s somewhere around 340 million six-packs), and MGD 64 has taken off in ways that people in the primary beer-drinkers demographic could never have imagined. Thus, it’s only logical to expect Anheuser-Busch to dust off its own ultra-low product research and attempt to take advantage of that growing new product segment…

Eventually, of course, this process must reach bottom. There are only a finite number of calories and carbohydrates in a bottle of beer (only 55 left in Select 55, in fact) and when those are gone, there is no way to venture into negative numbers. But the basic principle will continue; we can comfortably predict that any new product category either of these companies develops will be invaded by the other as soon as it develops that there are any customers out there who are willing to pay for that product. Which brings us to the point of today’s harangue: do not assume that just because you’ve expended all of the time and effort to pioneer a new product category that you will then be able to maintain sole possession of that category for any length of time. Eventually, someone else is going to notice that you are making money selling that product and decide to cut themselves a slice of that pie, which means that your strategy MUST include plans for what to do when follow-on products began to enter your market, at least if you want to remain successful…

Alternately, I suppose, you could just wait for someone else to invent a new product category and follow them into it. But if you adopt that strategy, you’d better be prepared to outperform the first-mover in product quality, product availability, price, or at least marketing. And you should be ready to respond when they innovate the next big thing…