Understanding the Pioneering Advantage From the Decision Maker’S Perspective: the Case of Product Involvement and the Status Quo Bias

ABSTRACT - Researchers have debated the existence of the pioneering advantage. This paper introduces a two-stage decision making framework in order to better understand the contingent nature of this phenomenon. This model provides a theoretical rationale for the incongruous success rates of pioneers in different product categories. By integrating ideas relating to product involvement and the status quo bias, this framework illustrates how the consumer decision process may lead to a pioneering advantage. We conclude with a discussion and directions for future research.

Citation:

Susan Bardi Kleiser and Judy A. Wagner (1999) ,"Understanding the Pioneering Advantage From the Decision Maker’S Perspective: the Case of Product Involvement and the Status Quo Bias", in NA - Advances in Consumer Research Volume 26, eds. Eric J. Arnould and Linda M. Scott, Provo, UT : Association for Consumer Research, Pages: 593-597.

Advances in Consumer Research Volume 26, 1999      Pages 593-597

UNDERSTANDING THE PIONEERING ADVANTAGE FROM THE DECISION MAKER’S PERSPECTIVE: THE CASE OF PRODUCT INVOLVEMENT AND THE STATUS QUO BIAS

Susan Bardi Kleiser, University of Texas at Arlington

Judy A. Wagner, University of Texas at Arlington

ABSTRACT -

Researchers have debated the existence of the pioneering advantage. This paper introduces a two-stage decision making framework in order to better understand the contingent nature of this phenomenon. This model provides a theoretical rationale for the incongruous success rates of pioneers in different product categories. By integrating ideas relating to product involvement and the status quo bias, this framework illustrates how the consumer decision process may lead to a pioneering advantage. We conclude with a discussion and directions for future research.

INTRODUCTION

Is the pioneering advantage a fallacy? The answer to this question has been debated extensively by researchers. Research in support of the pioneering advantage has shown that the first entrant in a new product category or market frequently earns a long-term market share advantage over followers (Robinson 1988; Robinson and Fornell 1985). On the other hand, several empirical studies have chllenged this advantage (Glazer 1985; Lilien and Yoon 1990; Schnaars 1986). Based on results of an historical analysis of data gathered from over 450 articles and 125 books, Golder and Tellis (1993) have also questioned the existence of the pioneering advantage. They found that of all pioneers studied (including survivors and nonsurvivors) almost 50% have not survived. Broken down by product type, only one-third of pioneers in durable goods categories have survived, while the survival rate surpasses 70% for pioneers in nondurable goods markets. While some research contests the pioneering advantage, its existence in specific product categories, such as nondurable goods, can not be ignored. What then explains this apparent pioneering-advantage discrepancy based on product category?

The purpose of this paper is to identify conditions which may cultivate the pioneering advantage. First, the consumer-based process models currently used to explain the pioneering advantage are reviewed. Second, the literature streams on involvement and the status quo bias are combined in an integrative framework to help interpret why particular brands in the same product category are preferred more than others simply because they are pioneers. By including product involvement in the framework, this two-stage model of consideration and choice addresses the discrepancy in pioneer survival rates found in the Golder and Tellis (1993) study. Following an explanation of the model, corresponding propositions are developed. Finally, proposed topics for future research are discussed.

THE PIONEERING ADVANTAGE

Much research on the pioneering advantage has focused on the outcome, or producer-based advantage (Golder and Tellis 1993) attained by the first entrantCmarket share dominance. The predominant rationale for the pioneering firm’s advantage is founded in the concepts of barriers to entry (Bain 1956; Robinson and Fornell 1985; Urban, Carter, Gaskin, and Mucha 1986) and technological leadership (Gilbert and Newberry 1982; Lieberman and Montgomery 1988; Spence 1981). In other words, pioneers often achieve lower costs than followers can through the advantage of increased learning and economies of scale gained by entering the new market first. In addition, pioneers’ products will be superior to those of the followers when the pioneers possess advanced technology (Golder and Tellis 1993).

Process Models

It is easy to see the outcome of the pioneering advantage, but what drives consumers to favor the pioneer? Several theories have been proposed and tested to explain the decision making process through which consumers choose the pioneer brand over other alternatives. First, Schmalensee (1982) has suggested that consumers are initially skeptical about the quality of any brand that enters the market. Yet, when consumers become convinced that the first entrant in the product category is satisfactory, the early entrant acts as the standard of comparison by which later entrants are judged. It is for this reason that it becomes difficult for followers to persuade consumers to learn about their later-entry alternative brands.

In a second stream of research, Kardes and Gurumurthy (1992) have ascribed this "order-of-entry effect" to differential learning. For instance, consumers often find the pioneer to be novel and attention-drawing while its followers appear to be redundant in comparison. The novelty of the pioneer promotes learning about its features, while the redundancy of the followers’ attributes inhibits learning concerning their qualities. Consequently, consumers tend to learn and remember more about the pioneer and will thus develop more extreme (favorable) evaluations regarding it. Consistent with differential learning and learning theory, a preference-evolution model has been introduced to explain the pioneer’s selection advantage: consumers’ preferences evolve over time whereby the pioneer becomes the prototype for the category and the standard against which all late entrants are compared (Carpenter and Nakamoto 1989).

Kardes, Gurumurthy, Chandrashekaran and Dornoff (1993) have extended the work of Schmalensee (1982), Kardes and Gurumurthy (1992) and Carpenter and Nakamoto (1989) in an attempt to further explain the pioneering advantage. In their sequential multi-stage process model, Kardes et al. (1993) contend that first; for a brand to be considered, it must be able to be retrieved, and second; for a brand to be chosen, it must have been considered initially. As such, they hypothesizeCand find supporting evidenceCthat a pioneering brand is more likely than a follower to be retrieved because of the natural saliency and distinction inherent only to the pioneer. And furthermore, they find that a pioneer brand is more likely than a follower to be considered because the benefits of evaluating the pioneer when it is the only player in the market outweigh the costs of evaluation. However, as more brands enter the market, the likelihood of considering additional brands decreases because the costs of evaluating one more brand outweigh the potential benefits. It eventuates, then, that the pioneer is more likely than a follower to be chosen.

Failure and the Pioneer

Although the theories and studies discussed above provide compelling explanations of the pioneering advantage, it is important to note that this advantage does not always hold. As discussed earlier, there is evidence suggesting that the failure rates for pioneers vary across product class; 67% in durable and 28% in nondurable goods markets (Golder and Tellis 1993).

How can this significant difference in failure rates between nondurable and durable goods pioneers be explained? From the consumer’s perspective, the process models presented above are unable to account for this discrepancy in failure rates because these models do not distinguish among product categories. For example, according to the differential learning and the preference-evolution models, success rates should be equal for durable and nondurable goods. To help explain this discrepancy, this paper introduces a process framework that not only focuses on the consumer-based advantages reaped by surviving pioneers but also addresses the inconsistency in success rates for pioneers in nondurable goods markets versus those in durable goods markets.

THE PIONEERING ADVANTAGE, INVOLVEMENT AND THE STATUS QUO BIAS: A FRAMEWORK

In general, the consumer-based advantages enjoyed by the pioneering firm result when the consumer first chooses and then repurchases the product. The Model illustrates a two-stage process model which highlights those steps taken by consumers when choosing a brand in a previously encountered product category, and those conditions under which the pioneer will be chosen over the follower. [Please note that this figure highlights a specific case where the follower enters the market as a better product than the existing pioneer. It is this case that is used in the development of this reserach.]

As shown in the Model, under both high and low levels of involvement, the pioneering advantage may prevail. However, the processes by which the pioneer is chosen differ dependent on the level of involvement. For low involvement products, the pioneer may be chosen by default if it is the only brand considered. On the other hand, even when a superior follower is considered (e.g., in the case of high involvement products), the pioneer may still be chosen reflecting decision making bias on the part of the consumer. The following sections provide a detailed rationale for the development of this model.

Stage 1: Formation of the Consideration Set: Low vs. High Involvement

When consumers decide to purchase a brand in a product category in which they have already experienced the pioneer, their choice will be based on a conideration set that contains either one brand (i.e., the pioneer) or more than one brand (i.e., the pioneer and later entrants). For this research, the consideration set will be defined as the collection of brands that have been examined by the consumer. [It is assumed that a product that has been used before has been examined.]

The level of involvement associated with a product influences the conditions under which the follower will be considered. Involvement is a complex construct encompassing several dimensions such as involvement with advertising, with a product or with a purchase decision (Zaichokwsky 1986). For our purposes, we restrict involvement to product involvement which is defined as, "a person’s perceived relevance of the object based on inherent needs, values and interests." (Zaichkowsky 1985, p. 342). A product involvement definition (Zaichkowsky 1986) is appropriate here because of our interest in explaining differences in the pioneering advantage among product categories.

Celsi and Olson (1988) have linked involvement and the motivation to process information. High involvement products (e.g., an infrequently purchased, typically expensive product, such as a durable good) can be associated with deliberative effort in decision making. Fazio (1990, pp. 88-89) emphasizes that "deliberative processing is characterized by considerable cognitive work. It involves the scrutiny of available information and an analysis of positive and negative features, of costs and benefits." Given the duration between purchases for a durable goodCwhich is typically highly involving, consumers may see a necessity to examine more than one alternative since the repercussions of the choice will endure until the next purchase. This idea coincides with Gensch and Javalgi (1987) who suggest that a more involved decision maker will seek out more information for alternatives, than a less involved decision maker will. Thus, as shown in the model, high involvement with a product should encourage the evaluation of additional alternatives, such that both the pioneer and the follower are considered.

On the other hand, low involvement productsClow cost, habitually-purchased items such as consumer nondurablesC can be associated with little if any processing at the time of decision making. More specifically, goods which are repeatedly purchased will be chosen as a result of habit, or without conscious thought (Ronis, Yates and Kirscht 1989). As a result, there may be selective perception of the alternatives available to be purchased (Fazio 1990) such that only the pioneer, assuming that it is the currently used brand, is considered. Thus, in addition to containing the pioneer, the consideration set may, or may not, include the follower depending on the level of involvement associated with the product.

P₁: The consumer’s consideration set is more likely to contain the follower for high involvement products than for low involvement products.

If consideration set formation is dependent on involvement with the product, how then is choice affected? If a brand is not considered, it cannot be chosen. And, ultimately, choice dictates a brand’s success.

Stage 2: Choice Among Considered Alternatives

The consideration set sizeCas shaped by the consumer’s involvement with the product categoryChas significant implications for choice. Following from Kardes et al. (1993), only considered brands can be chosen. Then, if only the pioneer is considered, only the pioneer can be chosen. This is more likely to occur for low involvement products (e.g., nondurables) than for high involvement products as explained by our arguments outlined in Stage 1. This rationale may provide insight into the success of pioneers in product categories representing epeatedly purchased, low involvement goods such as nondurables (Golder and Tellis 1993).

As depicted in our model, for the case of the high involvement product, it is more likely that the consideration set includes the follower as well as the pioneer. As more followers are considered, the probability of choosing the pioneer is reduced. First, a larger set size statistically reduces the pioneer’s chance of being chosen. Second, the pioneer may fail to be chosen especially if the perceived value of an alternative outweighs the value of the pioneer. Thus, the consideration of alternatives associated with high involvement products may contribute to the demise of pioneers in the durable goods market because of moreCand perhaps betterCcompetitors (i.e., considered followers) at the time of choice.

MODEL

PROPOSED DECISION MAKING MODEL OF INVOLVEMENT, STATUS QUO BIAS AND THE PIONEERING ADVANTAGE

To summarize the above discussion, given that the follower is less likely to be considered for low (versus high) involvement products and thus has reduced probabilities of being chosen, we posit the following:

P₂: The pioneer is likely to be chosen more often for low involvement products than for high involvement products.

If the follower provides a higher expected value than the pioneer, in which situations will the pioneer still be chosen? Under low involvement, the pioneer has a high likelihood of being chosen since the follower is not likely to be considered. The consumer remains unaware of the follower’s superiority. When more deliberative decision making demands consideration of alternatives, as in the case of a highly involving product, the pioneer’s selection may still be ensured due to the status quo bias. This bias is discussed next.

The Influence of the Status Quo Bias on the Pioneering Advantage. If a follower is considered and is deemed better than the pioneer, a consumer may still choose the pioneering brand over the alternative. This quasi-rational behavior can be explained by the status quo bias (Tversky and Kahneman 1991). Samuelson and Zeckhauser (1988) define the status quo bias as the tendency for decision makers to do nothing or maintain their current or previous decision.

Prospect theory provides the theoretical foundation for this "anomaly" (Kahneman, Knetsch, and Thaler 1991) to rational decision making. Prospect theory as advanced by Kahneman and Tversky (1979) has challenged the inherent inadequacies of the economists’ normative theory of rational choice (i.e., expected utility theory) by powerfully justifying the situations and the conditions under which individuals may not act rationally. Specifically, prospect theory’s principles of loss aversion and reference points provide support for the status quo bias.

The loss aversion tenet from prospect theory states that losses loom larger than gains. For example, if A is the status quo, then the perceived losses from switching to another alternative, B, are likely to overshadow the perceived gains from switching (Tetlock and Boettger 1994). Similarly, the consumer’s reference point in decision making may lead to the status quo bias. A consumer who is indifferent between A and B from a neutral point t will prefer A to B from A, and B to A from B (Tversky and Kahneman 1991). Therefore, due to the influence of loss aversion and the reference point phenomenon, if A is the pioneer, B is the follower, and the consumer has previously used A, the pioneer is likely to be preferred over the follower. [The premise of the status quo bias has been modified in recent literature because it is confounded by the omission bias (Ritov and Baron 1990,1992). Ritov and Baron (1992) suggest that inaction and maintaining one's previous or current decision may not necessarily be equivalent as is suggested by Samuelson and Zeckhauser's (1988) definition of the status quo bias. For example, Ritov and Baron (1990, 1992) illustrate the following point: since individuals react more strongly to adverse outcomes caused by action (commission) than to those caused by inaction (omission), they will prefer inaction over action even when inaction is associated with a change from the status quo. In other words, if maintaining the current state involves action, the adverse outcomes (losses) that could potentially result from taking action will influence a decision maker not to act at the expense of the status quo. As a result, the omission bias may be a more appropriate representation of this behavior just described. Thus, in order to avoid further confounding of the omission and status quo biases, this paper will focus on those situations where maintaining the status quo requires no action but accepting the alternative demands commission.]

The study of the status quo bias has been refined in recent literature by isolating variables that may enhance this bias. For example, the anticipated regret associated with outcomes resulting from action (e.g., switching to the follower) rather than inaction (e.g., staying with the pioneer) encourages the maintenance of the status quo (Kahneman and Tversky 1982; Ritov and Baron 1990; Simonson 1992). Thus, maintaining the status quo will alleviate anticipate regret. In addition, accountability and size (significance) of the decision reinforce this bias (Tetlock and Boettger 1994). Even though alternatives may be considered (e.g., in the case of high involvement products), when the stakes are high (e.g., cost), maintaining the status quo becomes very attractive.

Applying the status quo bias research to our context, as the first and only entrant in a new product category, the pioneer can be viewed as the status quo once a consumer purchases and uses this product. Based on the status quo bias, as a new brand enters the product category, and the consumer is faced with an additional alternative at the time of purchase, the consumer is likely to choose the pioneer because the disadvantages of switching may outweigh the advantages. This is further enhanced by the fact that the pioneer is the reference point to which the follower is compared. Consequently, the pioneer will be preferred.

When more than one alternative is considered, as is likely the case for high involvement products, a rational decision maker would be expected to weigh all evidence and to select the alternative with the highest value. Although most consumers will act rationally and choose the objectively better alternative, which in our case is the follower, some may not choose the follower due to the presence of a status quo bias. This preference for the pioneer over a superior alternative may provide one explanation for the survival of a third of the pioneers in the durable goods market. To accommodate the potential for significant decision making behavior that is not rational due to the status quo bias, we propose the following:

P₃: When the follower is considered and its expected value exceeds that of the pioneer, the pioneer’s likelihood of choice will be

(a) less than that of the follower, but

(b) greater than zero.

DISCUSSION

Does being the first entrant in a new market ensure marketplace advantages as well as survival? Based on the findings in the Golder and Tellis study (1993), the answer to this question of survival is contingent on the type of product market. With this in mind, the pioneering advantage should be examined with respect to different product categories. This paper introduces a two-stage model which offers an interpretation of the contingent existence of the pioneering advantage across product markets differentiated by product involvement. By integrating ideas relating to product involvement and the status quo bias, this framework explains the consumer-based decision process which results in the pioneering advantage, and highlights some conditions in which the pioneering advantage is more pronounced. Further, this model provides a theoretical rationale for the incongruous success rates of pioneers in different product categories.

It will be important to test and assess the viability of this decision making framework and corresponding propositions in order to judge the model’s contribution to our understanding of the pioneering advantage. Beyond the empirical testing of the proposed model, future theoretical research should investigate moderating variables and boundary conditions to this framework. These variables may include level of satisfaction/dissatisfaction with the pioneer, other forms of involvement, accountability and the number of alternatives consideed. If a consumer who is dissatisfied with the pioneer still chooses it over the follower because of loss aversion, it is important to determine the threshold levels of dissatisfaction for which this is true. With respect to other forms of involvement, situational involvement may mitigate the pioneering advantage for low involvement goods. Regarding the potential influence of accountability, as the consumer becomes more accountable for her decision (e.g. a purchase made for a family member’s birthday), the pioneering advantage may be diluted for low involvement products. Finally, Kahneman et al. (1991) have proposed that as the number of alternatives increases, the advantage for the status quo increases. Consequently, varying the number of followers in the marketplace should be investigated to determine the impact on the pioneering advantage.

Future research can also guide practitioners. Because the status quo bias may accentuate the pioneering advantage, research is needed to help late entrants develop strategies to overcome this bias. For example, in accordance with Hoch and Deighton’s (1989) hypothesis-testing model, late entrants need to find ways to encourage consumers to learn about their brands (i.e., facilitate deliberative decision making) and to develop consumers’ awareness of a follower’s superiority over the pioneer. Such strategies may not only prevent spontaneous decision making but also attenuate the impact of the status quo bias.

In conclusion, the pioneering advantage is an intriguing phenomenon that has sparked an interesting debate in the marketing literature. Although it is not omnipresent, the pioneering advantage should not be ignored. Consequently, our framework is offered to increase the understanding of this seemingly contingent market occurrence.

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