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Innovation Strategies in Retail Financial Services: How Followers Can Succeed Against Pioneers

Posted by Val Srinivas, Banking & Securities research leader, Deloitte Services LP, on June 18, 2014

Pioneering: A rare phenomenon

While buying ice cream over the Memorial Day weekend, my kids couldn't help but notice that the ice cream truck vendor used a mobile credit card reader to process payments. They thought it was really "cool" that a mobile phone could be used to accept credit card payments.

A company called Square, Inc. pioneered a new category in 2010, and many consider it to be a pretty impressive innovation in retail payments. Attracted by the potential, other firms have followed Square and launched similar products, but they have yet to be as successful. Square was able to establish a strong foothold quickly and has continued to innovate with new services. How long Square can sustain its pioneer advantage remains to be seen,1 with a number of industry behemoths close behind.

The Square example illustrates an under-appreciated truism in innovation: there can be only one pioneer in any product category, and most firms will find themselves as "followers" — sometimes by choice, but mostly by circumstance. Either way, they will be forced to contend with the pioneer, and possibly other preceding competitors to establish market leadership.

Despite this ubiquitous phenomenon, prescriptive advice is lacking for what followers can do to go up against the pioneer and attain market leadership. Understanding how followers succeeded in the past — what business strategies they embraced and what innovations they pursued — can be invaluable to firms in the financial services industry, where new categories are few and far between.

Much has been written on the topics of pioneer advantage and order of market entry, but without clear consensus on who typically wins in the long term — the pioneer, or one of the followers. Those who say pioneers have the decided advantage cite this group's ability to erect entry barriers in the form of proprietary technology, patents, or other scarce resources as the key components to their success.2 Those who argue in favor of followers suggest that they in fact enjoy lower failure rates and development costs, while also able to adapt and learn from pioneers' experience.3

How can followers go up against pioneers?

Motivated to fill this gap, my colleagues, Ryan Zagone and Lincy Therattil, and I decided to explore this topic in some depth.

In the absence of definitive research on this topic, we aimed to understand what successful followers did by analyzing case studies using two Deloitte frameworks: The Three Rules, an analysis of exceptional long-term performance, and Ten Types of Innovation.4 Used together, these two models offer a valuable lens to understanding successful follower strategies.

Our case studies in the retail financial services industry suggest that followers who were successful in wrestling market leadership from pioneers did so by adding superior non-price value compared to their competitors'. That is, they focused on making their product better rather than cheaper. Companies that offered cheaper alternatives or products without unique features did not realize the same gains in market share.

This naturally raises the question: "How do followers add more non-price value?" In our findings, successful followers did this by innovating across a mix of product and company dimensions including configuration, product offering, and experience attributes. They spread their innovation efforts across multiple areas, instead of concentrating their efforts on one specific product attribute.

These are simple, yet powerful, insights. Financial services firms can use these findings to make more informed decisions about their innovation strategies in the inevitable battles between pioneers and followers, much like the current evolution of mobile payments.

A complete report based on our analysis will be published by the Deloitte Center for Financial Services and Deloitte University Press on June 16. Please visit to download the report entitled, "From follower to leader: Innovation strategies in retail financial services."

I encourage you to read the report and share your thoughts on how financial services might apply these insights.

1 Ellen McGirt, "05_SQUARE," Fast Company, February 7, 2012,
2 Marvin B. Lieberman and David B. Montgomery, "First Mover Advantages," Strategic Management Journal, Vol. 9, Summer 1998, pp. 41-58; Gurumurthy Kalyanaram, William T. Robinson, Glen L. Urban, "Order of Market Entry: Established Empirical Generalizations, Emerging Empirical Generalizations, and Future Research," Marketing Science 14, no. 3 (1995): 212-241; Demetrios Vakratsas, Ram C. Rao, and Gurumurthy Kalyanram, "An Empirical Analysis of Follower Entry Timing Decisions," pp. 203-216.
Marvin B. Lieberman and David B. Montgomery, "First Mover Advantages," Strategic Management Journal, Vol.  9, Summer 1998.
4 Michael E. Raynor and Mumtaz Ahmed, The Three Rules: How Exceptional Companies Think (New York, NY: Portfolio/Penguin, 2013); Larry Keeley, Ryan Pikkel, Brian Quinn, and Helen Walters, Ten Types of Innovation: The Discipline of Building Breakthroughs (New York, NY: Wiley, 2013).

As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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