Late Mover Advantage: How Innovative Late Entrants Outsell Pioneers

Abstract

Although pioneers outsell late movers in many markets, in some cases innovative late entry has produced some remarkably successful brands that outsell pioneers. The mechanisms through which innovative late movers outsell pioneers are unclear. To identify these mechanisms, the authors develop a brand-level model in which brand sales are decomposed into trials and repeat purchases. The model captures diffusion and marketing mix effects on brand trials and includes the differential impacts of innovative and noninnovative competitors’ diffusion on these effects. The authors develop hypotheses on how the diffusion and marketing mix parameters of the brands differ by market entry strategy (pioneering, innovative late entry, and noninnovative late entry). The authors test these hypotheses using data from 13 brands in two pharmaceutical product categories. The results show that an innovative late mover can create a sustainable advantage by enjoying a higher market potential and a higher repeat purchase rate than either the pioneer or noninnovative late movers, growing faster than the pioneer, slowing the pioneer's diffusion, and reducing the pioneer's marketing spending effectiveness. Innovative late movers are advantaged asymmetrically in that their diffusion can hurt the sales of other brands, but their sales are not affected by competitors’ diffusion. In contrast, noninnovative late movers face smaller potential markets, lower repeat rates, and less marketing effectiveness compared with the pioneer.