Question

Each of the following parts describes a firm that was an early mover in its market. In light of the information provided, indicate whether the firm’s position as an early mover is likely to be the basis of a sustainable competitive advantage, and explain why or why not. (2 points: 1 point each)
A bank has issued the largest number of ATM cards in a large urban area. Banks view their ability to offer ATM cards as an important part of their battle for depositors, and in this market a customer’s ATM card for one bank does not work on the ATM systems of competing banks.
A firm has a 60% share of T3MP, a commodity chemical used to make industrial solvents. Minimum efficient scale is thought to be 50% of current market demand. Recently, a change in environmental regulation has dramatically raised the price of a substitute chemical that indirectly competes with T3MP. This undermines the market for the substitute, which is about twice the size of the market for T3MP.

Answer 1

ANSWER:

Let us consider Porter’s Five forces strategy, in analyzing the particular scenario of Bank and that of the firm which produces T3MP chemical.

As the bank is an early mover in the issuance of ATM cards, the bank definitely got the competitive advantage. As an early mover, the bank faced very low threat of new entrants with regard to distribution of ATM cards. Therefore, the bank could capture a large area of urban region. Also, the switching cost for bank customers is quite high and in the case of banks, generally the individual customers prefer to stick to one or two banks. As an early mover, this was definitely an advantage to the bank. As a result, the bank also got a loyal customer base in the long run. When the brand loyalty was combined with the high switching cost of bank products; in terms of ATM, the entry of a potential competitor was difficult for the bank. Since the ATM cards are unique to each customer and bank, the ATM products adopts a generic differentiation strategy in terms of technology and point of locations. The place is definitely a competitive advantage of bank ATMs and being an early mover, they could capture a large share of customers in the urban areas.

As the ATM cards are specially made for the particular banks, they are definitely a tool for gaining advantage over the competitors. Hence the bank enjoys a definitive leadership in terms of its competitive advantage as an early mover where it could capture a large urban area, and in terms of technology where one bank’s ATM card doesn’t fit into another.

In the case of second firm, which has a 60 percent share of T3MP, faces the threat from substitute products. But T3MP has got the competitive advantage over its substitute product, due to the low bargaining power of customers. T3MP seems to have only a major substitute, whose market share seemed to have dented by the increase in price of the substitute. The low price of T3MP compared to the substitute is definitely a competitive advantage for the firm. This would decrease the competition from the substitute product which in turn will increase the sale of T3MP. Further, the substitute won’t be able to limit the growth of T3MP by setting a sealing price. The firm could increase its marginal returns through increased sale of T3MP. Thus the firm could capture the market share of the substitute which is twice as that of T3MP and could increase its revenue and earning potential.

NOTE:if you face any trouble to understand the answer to the problem please mention it in the comment box.
if you are satisfied, please give me a LIKE if possible.