Pioneers -- those innovative "first movers" who enter markets before competitors - are often deified as engines of economic growth while imitators are generally scorned as copycats and shameful followers. But who most often wins? Drawing on seven years of research, Steven Schnaars documents that, in sharp contrast to conventional beliefs, imitators commonly surpass pioneers as market leaders and attain the greatest financial rewards.
How do they do it? In this ground-breaking book -- the first to formulate imitation strategies for managers -- Schnaars systematically examines 28 detailed case histories, from light beer to commercial jet liners, in which imitators such as Anheuser-Busch and Boeing prevailed over pioneers. He describes the marketing wars, court battles, and even personal vendettas that often resulted, and shows that imitators have several clear advantages. Pioneers are forced to spend heavily on both product and market development. They also risk making costly mistakes. Pioneers often aid in their own destruction, thrown into confusion by rapid growth, internal bickering, and the neverending search for expansion capital.
Moreover, imitators do not have to risk expensive start-up costs or pursuing a market that does not exist, enabling them to quickly outmaneuver pioneers once the market is finally shaped. By patiently waiting on the sidelines while the innovator makes the mistakes, imitatorscan also usurp benefits from the test of time -- major defects in the product having been removed by the pioneer at an earlier stage in the game.
Schnaars discusses the three basic strategies that successful imitators such as Microsoft, American Express, and Pepsi have used to dominate markets pioneered by others. First, some imitators sell lower-priced, generic versions of the pioneer's product once it becomes popular, as Bic did with ballpoint pens. Second, some firms imitate and improve upon the pioneer's product; for example, WordPerfect in the case of word processing software. Third, building on their capital, distribution, and marketing advantages that smaller pioneers cannot hope to match, imitators use the most prevalent strategy of all -- bullying their way into a pioneer's market on sheer power. In several cases a one-two-punch, or combination of strategies, is often utilized by the imitator to remove any doubt regarding their dominance in the market and in the eyes of the public.
Schnaars concludes that the benefits of pioneering have been oversold, and that imitation compels recognition as a legitimate marketing strategy. It should be as much a part of a company's strategic arsenal as strategies for innovation.
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In order to examine the relative power of free-rider effects, twenty-eight detailed case histories were constructed for situations where imitators surpassed pioneers in emerging markets:
35mm cameras
Automated teller machines
Ballpoint pens
Caffeine-free soft drinks
CAT scanners
Commercial jet aircraft
Computerized ticketing services
Credit/charge cards
Diet soft drinks
Dry beer
Food processors
Light beer
Mainframe computers
Microwave ovens
Money-market mutual funds
MRIs
Nonalcoholic beer
Operating systems for personal computers
Paperback books
Personal computers
Pocket calculators
Projection television
Spreadsheets
Telephone answering machines
VCRs
Videogames
Warehouse clubs
Word-processing software
Table 3.1 (pp. 38-43) provides a more detailed summary. It lists the pioneers and the imitative later entrants, along with the dates they entered and the reasons for the imitators’ success.
CHARACTERISTICS OF THE CASES
The twenty-eight cases were selected with the following specific criteria in mind.
TABLE 3.l
28 CASES WHERE IMITATORS SURPASSED PIONEERS
Product
Pioneer(s)
Imitator/Later Entrant(s)
Comments
1. 35mm cameras
Leica(1925) Contrax (1932) Exacta (1936)
Canon (1934) Nikon (1946) Nikon SLR (1959)
The pioneer was the technology and market leader for decades until the Japanese copied German technology, improved upon it, and lowered prices. The pioneer then failed to react and ended up as an incidental player.
2. Automated teller machines (ATMs)
Britain’s DeLaRue (1967) Docutel (1969)
Diebold (1971) IBM (1973) NCR (1974)
The pioneer was a small, entrepreneurial upstart that faced two types of competitors: (1) larger firms with experience selling to banks and (2) the computer giants. The pioneer did not survive.
3. Ballpoint pens
Reynolds (1945) Eversharp (1946)
Parker “Jotter” (1954) Bic (1960)
The pioneers disappeared when the fad first ended in the late 1940s. Parker entered eight years later. Bic entered last and sold pens as cheap disposables.
4. Caffeine-free soft drinks
Canada Dry’s “Sport” (1967) Royal Crown’s RC1OO (1980)
The pioneer had a three-year head start on Coke but could not hope to match the distribution and promotional advantages of the giants.
5. CAT scanners (Computed Axial Tomography)
EMl (1972)
Pfizer (1974) Technicare (1975) GE (1976) Johnson & Johnson (1978)
The pioneer had no experience in the medical equipment industry. Copycats ignored its patents and drove the pioneer out of business with marketing, distribution, and financial advantages, as well as extensive industry experience.
6. Commercial jet aircraft
deHavilland Comet 1 (1952)
Boeing 707 (1958) Douglas DC-8
The British pioneer rushed to market with a jet that crashed frequently. Boeing followed with safer, larger, and more powerful jets unsullied by tragic crashes.
Product
Pioneer(s)
Imitator/Later Entrant(s)
Comments
7. Computerized ticketing services
Ticketron (1968)
Ticketmaster (1982)
A small, aggressive upstart with a better product displaced the arrogant pioneer whose parent was in deep financial trouble.
8. Credit/charge cards
Diners Club (1950)
Visa/Mastercard (1966) American Express (1958)
The pioneer was undercapitalized in a business where money is the key resource. AMEX entered last with funds from traveler’s checks.
9. Diet soft drinks
Kirsch’s No-Cal (1952) Royal Crown’s Diet Rite Cola (1962)
The pioneer could not match the distribution advantages of Coke and Pepsi. Nor did it have the money needed for massive promotional campaigns.
10. Dry Beer
Asahi (1987)
Kirin, Sapporo, and Suntory in Japan (1988) Michelob Dry (1988) Bud Dry (1989)
The Japanese pioneer could not match Anheuser-Busch’s financial, marketing, and distribution advantages in the U.S. market.
11. Food processors
Cuisinart (1973)
Lower-priced copies by Black & Decker (late-1970s) Sunbeam “Oskar” (1984)
The pioneer failed to sell lower-priced models. A leveraged buyout drove it into bankruptcy when the market became price-sensitive.
12. Light beer
Rheingold’s Gablinger’s (1966) Meister Brau Lite (1967)
Miller Lite (1975) Natural Light (1977) Coors Light (1978) Bud Light (1982)
The pioneers entered nine years before Miller and sixteen years before Bud Light, but financial problems drove both out of business. Marketing and distribution determined the outcome. Costly legal battles were commonplace.
The marketing muscle of IBM, in particular its powerful sales force, proved no match for the tiny upstart. When the giant entered, it moved quickly to the forefront.
The pioneers spent two decades perfecting the product and developing the market. They sold premium products at premium prices. The Japanese, and then the Koreans, sold equal quality at much lower prices, which the pioneers could not match.
The tiny pioneer could not match the marketing, distribution, and financial advantages, as well as the reputation benefits, held by the imitators. Size mattered more than first entry. The later entrants swamped the pioneer with product variety.
16. MRI (magnetic resonance imaging)
Fonar (1978)
Johnson & Johnson’s Technicare (1981) General Electric (1982)
The tiny pioneer faced the huge medical equipment suppliers, which easily expanded into MRIs. The pioneer could not hope to match their tremendous market power.
17. Nonalcoholic beer
G. Heileman’s Kingsbuy (early 1980s) Switzerland’s Moussy(1983)
The innovators had a six-year head start, but first-mover advantages were no match for the marketing and distribution advantages of the later entrants. Heileman was in bankruptcy by the time the imitators entered.
Product
Pioneer(s)
Imitator/Later Entrant(s)
Comments
18. Operating systems for personal computers
CP/M (1974)
MS-DOS (1981) Microsoft Windows (1985)
The pioneer created the early standard but did not upgrade for the IBM-PC. Microsoft bought an imitative upgrade and became the new standard. Windows entered later and borrowed heavily from predecessors, then emerged as the leading interface.
19. Paperback books
Penguin (1935 in England) (1939 in the U.S.) Modem Age Books (1937) Pocket Books (1939)
Avon (1941) Popular Library (1942) Dell (1943) Bantam (1946)
The first successful American entrant learned much from its predecessors. Although it remains a paperback powerhouse, the last major entrant is generally considered to be the mass market leader. It had rich corporate parents and easy access to titles.
20. Personal computers
MITS Altair 8800 (1975) Apple II (1977) Radio Shack (1977)
The pioneers created computers for hobbyists, but when the market turned to business uses, IBM entered and quickly dominated, using its reputation and its marketing and distribution skills. The cloners then copied IBM’s standard and sold at lower prices.
21. Pocket calculators
Bowmar (1971)
Texas Instruments (1972)
The pioneer assembled calculators using TI’s integrated circuits. Tl controlled Bowmar’s costs, which rose as calculator prices fell. Vertical integration was the key.
22. Projection television
Advent (1973) Sony (1973 with an industrial model) Kloss Video (1977)
Panasonic (1978) Mitsubishi (1980)
Everything seemed to be arrayed against the pioneer. It had no money and was beset by internal strife. It also faced Japanese giants who lowered prices and introduced a new design that rendered the pioneer’s product obsolete. The pioneer went bankrupt.
Product
Pioneer(s)
Imitator/Later Entrant(s)
Comments
23. Spreadsheets
VisiCalc (1979)
Lotus 1-2-3 (1983)
The pioneer entered with a simple spreadsheet for primitive personal computers. Internal strife tore the firm apart while the imitator, who had developed part of VisiCalc’s program, introduced a superior product for the IBM-PC.
24. Telephone answering machines
Code-A-Phone (1958)
Panasonic (mid-1970s) AT&T (1983)
The pioneer was late to move production overseas. It could not match the low-cost production of the later entrants with shared experience in related products.
25. VCRs
Ampex (1956) CBS-EVR (1970) Sony U-matic (1971) Cartrivision (1972) Sony Betamax (1975)
JVC VHS (1976) RCA Selectra Vision (1977) made by Matsushita
The pioneer focused on selling to broadcasters while Sony pursued the home market for more than a decade. Financial problems killed the pioneer. Sony Betamax was the first successful home VCR but was quickly supplanted by VHS, a late follower, which recorded for twice as long.
26. Videogames
Magnavox’s Odyssey (1972), the first home game Atari’s Pong (1972), the first coin-operated arcade game
Nintendo’s Home Entertainment System (1985) Sega “Genesis” (1989) NEC “TurboGrafx” (1989)
The market went from boom to bust to boom. The bust occurred when home computers seemed likely to make game players obsolete. Kids lost interest when games lacked challenge. Price competition ruled. Nintendo rekindled interest with better games and restored market order with managed competition.
27. Warehouse clubs
Price Club (1976)
Sam’s Club, Costco, Pace, and BJ’s Wholesale Club (all entered in 1983)
The pioneer stuck to the Southern California market and could not match the financial resources of Wal-Mart’s Sam’s Club when it came to national expansion.
Product
Pioneer(s)
Imitator/Later Entrant(s)
Comments
28. Word- processing software
Wordstar (1979)
WordPerfect (1982) Microsoft Word (1983)
The pioneer was stuck with an obsolete standard when it failed to update. When it did update, Wordstar abandoned loyal users, offered no technical support, and fought internally. The follower took advantage.
Major Product Innovations
Most of the cases focus on major new products. In some instances they are the kinds of innovations that have changed the way we live. The intent was to avoid minor brand extensions of the type typically found on supermarket shelves. New cake and cookie preparations, for example, which change the size of the item or use a new flavored filling, were not considered. For the most part, the goal was to study competitive behavior in markets for important innovations that make a significant economic impact.
A Bias Toward High-Technology Products
More than half of the products listed qualify as high-technology products. Some are now so commonplace that they are no longer considered hi-tech, although they were when first introduced. Again, the intent was to focus on the types of innovations that are often perceived as the engines of economic growth.
A Bias Toward Consumer-oriented Products
My goal was to focus on products with which consumers have some direct experience. Some, like 35mm cameras and telephone answering machines, are items that consumers purchase directly for their own use. Commercial jet aircraft and CAT scanners, on the other hand, are examples of products that consumers do not purchase themselves but use through intermediaries. The intent was to avoid strictly industrial producs with which general readers would be unfamiliar. Previous studies of innovation, such as the one published by Jewkes, Sawers, and Stillerman more than a generation ago, which also relied on an analysis of case histories, have investigated such industrial products as tungsten carbide and continuous hot strip rolling in addition to consumer products like safety razors.1
Surpassed Rather than Merely Gained Share
There are different ways to measure the success of imitative later entries. Assessing whether the later entrant was able to gain a viable share of the market would be one way, or whether the imitator earned a profit. This study relies on the strictest measure of marketplace success. In every one of the cases considered in this chapter, the imitator replaced the pioneer as the market leader. Not only did the imitator gain a foothold in the market, it dominated the pioneer. In many cases, the pioneer was forced out of existence after the competitive battle had ended.
Competition in Emerging Versus Existing Markets
Every one of the cases listed above examines competitive market entry in an emerging growth market. None of them examines the entry of an outsider into a mature business dominated by a standing incumbent. Typically, the cases unfolded as follows: A pioneer would recognize a brand new opportunity, then later entrants would follow with an imitative product. What all the cases have in common is a high level of market growth.
That is different from competition in mature markets. Consider, for example, the automobile industry. When the Japanese auto sellers started to gain a significant share of the American automobile market from the Big Three American auto giants in the 1970s, it was not a case of pioneers and later entrants. Neither is the case of a firm that introduces a new kitchen cleanser in the 1990s and gains share on a dominant seller who entered in the late nineteenth century. Such cases are interesting examples of market share gains in mature markets, but they are hardly examples of competitive market entry strategies in new and emerging markets. Consequently, they are not considered.
HOW THE LIST WAS COMPILED
The cases listed in Table 3.1 were identified over a ten-year period from personal interviews, literature searches, mentions in other studies on pioneering and later entry, articles clipped and saved over the years, and just about anywhere else information could be found. The cases do not represent a random sample. They are more like a census of those important instances where later entrants with imitative products displaced pioneers with innovative products.
Selection was also restricted with respect to timing. Only entries that took place in the post-World War II period were considered. It seemed unreasonable to draw contemporary conclusions from century-old cases, such as later entrant Goodyear’s dominance in rubber tires over an even earlier entrant toward the end of the last century or Kodak’s win over Daguerreotype. Besides, an excellent review of such cases is provided elsewhere, also using historical analysis.2
HOW THE CASES WERE CONSTRUCTED
The case histories were constructed from data drawn from multiple sources. In most cases, that entailed consulting then current newspaper reports, trade association data, articles in business magazines, in-depth industry analyses, and expert opinions. The Wall Street Journal, New York Times, Business Week, Forbes, and Fortune were particularly helpful, as were case histories constructed by other authors for other purposes. Citations of important works are noted in the cases themselves.
Specific attention was paid to dates of entry (and exit) as they were reported in the business press. The overriding goal was to reconstruct the events as they occurred. Researching the cases was a fascinating process that at times seemed like detective work. Little by little the pieces of the puzzle fell into place.
The cases themselves vary in length, the longest totaling fourteen typewritten pages. The length of any one case depends on the details needed to tell the story. In some instances, it is a relatively simple and unadorned tale of the rise and fall of sequential entrants. In others, there are complications and nuances that require greater length. The intent is to relate the events that characterized the emergence of the market and the competitive battle for dominance that ensued as the product category evolved.
