chapter 6

6-1 © 2006 by Nelson, a division of Thomson Canada Limited.

Competitive Rivalry and Competitive Dynamics

Chapter 6


Competitive Rivalry & Competitive Dynamics

Knowledge objectives:1.1. Define competitors, competitive rivalry, competitive Define competitors, competitive rivalry, competitive

behaviour, and competitive dynamics.behaviour, and competitive dynamics.

2. Describe market community and resource similarity as the building blocks of a competitor analysis.

3.3. Explain awareness, motivation, and ability as drivers Explain awareness, motivation, and ability as drivers of competitive behaviour.of competitive behaviour.

4. Discuss factors affecting the likelihood a competitor will take competitive actions.

5.5. Discuss factors affecting the likelihood a competitor Discuss factors affecting the likelihood a competitor will respond to actions taken against it.will respond to actions taken against it.

6. Explain competitive dynamics in slow-cycle, fast-cycle, and standard-cycle markets.


Competitive DynamicsResults from a series of competitive actions and competitive responses among firms competing within a particular industry.

Competitive RivalryExists when two or more firms jockey with one another in the pursuit of better market position.


From Competitors to Competitive Dynamics

CompetitorsCompetitors

• Through competitiveThrough competitivebehavior -behavior -• Competitive actionsCompetitive actions• Competitive responsesCompetitive responses

• To gain an advantageousTo gain an advantageousmarket positionmarket position

Competitive DynamicsCompetitive Dynamics• Competitive actions and responses taken by allCompetitive actions and responses taken by all

firms competing in a marketfirms competing in a market

CompetitiveCompetitiverivalryrivalry

Engage Engage inin

Creates?Creates?

Creates?Creates?

Why?Why?

How?How?


Ability for Action and Response

Outcomes

Interfirm Rivalry:Attack & Response

A Model of Competitive Rivalry

Competitor Analysis

Drivers of Competitive Behaviour

Feedback



Outcomes

Awareness

Motivation


A Model of Competitive Rivalry (1)

Competitor Analysis


Feedback




Does the firm have appropriate incentives to attack or respond?

Do managers understand key characteristics of competitors?

Motivation

Awareness

*



Outcomes

Awareness


A Model of Interfirm Rivalry (2)

Competitor Analysis


Feedback

MarketCommonality

ResourceSimilarity

Motivation


Competitor Analysis

The first step the firm takes to be able to predict the extent and nature of it’s rivalry

with each competitor.


Competitor Analysis

• Market Commonality

The number of markets with which the firm and a competitor are jointly involved and the degree of importance of each market.

• Resource Similarity

The extent to which the firm’s tangible & intangible resources are comparable to a competitors in terms of both type & amount.


Competitor Analysis

Market Commonality

Competitor Analysis

Do firms compete with each other in multiple markets?

Multipoint competition tends to reduce competitive interactions, but increases likelihood of response where interaction occurs.

For example, airlines price flights similarly, but respond quickly when competitors introduce promotional prices.

**


Competitor Analysis

Resource Similarity

Market Commonality

Competitor Analysis

Do firms compete with each other in multiple markets?

Do competitors possess similar types or amounts of resources?

**


Likelihood of Attack

First Mover Incentives

Likelihood of Response

Competitive Action Type

Dependence on Market

Resource Availability

Actor’s Reputation


Outcomes

Awareness


A Model of Interfirm Rivalry (3)

Competitor Analysis


Feedback

MarketCommonality

ResourceSimilarity

Motivation


Factors Affecting Likelihood of Attack:

• First movers allocate funds forFirst movers allocate funds for– product innovation and developmentproduct innovation and development– aggressive advertisingaggressive advertising– advanced research and developmentadvanced research and development

• First movers can gain First movers can gain – the loyalty of customers who may the loyalty of customers who may

become committed to the firm’s become committed to the firm’s goods or servicesgoods or services

– market share that can be difficult for market share that can be difficult for competitors to take during future competitors to take during future competitive rivalrycompetitive rivalry

First moverFirst moverincentivesincentives

First Mover IncentivesFirst Mover Incentives


SizeSize


• Small firms are more likelySmall firms are more likely– to launch competitive actions to launch competitive actions – to be quicker in doing so.to be quicker in doing so.

• Small firms are perceived asSmall firms are perceived as– nimble and flexible competitors nimble and flexible competitors – relying on speed and surprise to relying on speed and surprise to

defend their competitive advantages defend their competitive advantages or develop new ones while engaged or develop new ones while engaged in competitive rivalry.in competitive rivalry.

• Small firms have the flexibility needed to Small firms have the flexibility needed to launch a greater variety of competitive launch a greater variety of competitive actions.actions.


SizeSize



• Large firms are likely to initiate more Large firms are likely to initiate more competitive actions as well as strategic competitive actions as well as strategic actions during a given time period.actions during a given time period.

• Large organizations commonly have the Large organizations commonly have the slack resources required to launch a larger slack resources required to launch a larger number of total competitive actions.number of total competitive actions.


SizeSize

SizeSize

““Think and act big and we’ll get smaller. Think and Think and act big and we’ll get smaller. Think and act small and we’ll get bigger.”act small and we’ll get bigger.”

- Herb Kelleher, Former CEO, Southwest Airlines- Herb Kelleher, Former CEO, Southwest Airlines


QualityQuality


• Quality exists when the firm’s goods or Quality exists when the firm’s goods or services meet or exceed customers’ services meet or exceed customers’ expectations.expectations.


SizeSize

QualityQuality

• Product quality dimensions include:Product quality dimensions include:– PerformancePerformance– FeaturesFeatures– FlexibilityFlexibility– DurabilityDurability– ConformanceConformance– ServiceabilityServiceability– AestheticsAesthetics– Perceived qualityPerceived quality


QualityQuality


• Quality exists when the firm’s goods or Quality exists when the firm’s goods or services meet or exceed customers’ services meet or exceed customers’ expectations.expectations.


SizeSize

QualityQuality

• Service quality dimensions include:Service quality dimensions include:– TimelinessTimeliness

– CourtesyCourtesy

– ConsistencyConsistency

– ConvenienceConvenience

– CompletenessCompleteness

– AccuracyAccuracy


Quality Dimensions of Goods & Services

Product Quality Dimensions:

Performance Operating characteristics

Features Important special characteristics

Flexibility Meeting operating specifications over time

Durability Amount of use before performance declines

Conformance Match with pre-established standards

Serviceability Ease and speed of repair or normal service

Aesthetics How a product looks and feels

Perceived Subjective assessment of characteristics (product image)quality


Quality Dimensions of Goods & Services

Service Quality Dimensions:

Timeliness Performed in promised period of time

Courtesy Performed cheerfully

Consistency Giving all customers similar experiences

Convenience Accessibility to customers

Completeness Fully serviced, as required

Accuracy Performed correctly each time


Factors Affecting Likelihood of Response

• Firms study three factors to predict how a Firms study three factors to predict how a competitor is likely to respond to competitive competitor is likely to respond to competitive actions:actions:

- type of competitive actiontype of competitive action

- reputationreputation

- market dependencemarket dependence


Competition

• Competitive DynamicsCompetitive Dynamics– competitive dynamics concerns the ongoing actions competitive dynamics concerns the ongoing actions

and responses taking place among and responses taking place among allall firms firms competing within a market for advantageous positionscompeting within a market for advantageous positions

• Competitive RivalryCompetitive Rivalry– building and sustaining competitive advantages are at building and sustaining competitive advantages are at

the core of competitive rivalrythe core of competitive rivalry

– competitive advantages are the link to an competitive advantages are the link to an advantageous market positionadvantageous market position


Factors Affecting Likelihood of Response:

• Strategic actions receive strategic Strategic actions receive strategic responsesresponses

• Tactical responses are taken to counter Tactical responses are taken to counter the effects of tactical actionsthe effects of tactical actions

• Strategic actions elicit fewer total Strategic actions elicit fewer total competitive responsescompetitive responses

• A competitor likely will respond quickly to A competitor likely will respond quickly to a tactical actiona tactical action

• The time needed to implement and The time needed to implement and assess a strategic action delays assess a strategic action delays competitors’ responsescompetitors’ responses

Type ofType ofcompetitivecompetitive

actionaction

Type of Competitive ActionType of Competitive Action


ReputationReputation


• An actor is the firm taking an action or An actor is the firm taking an action or responseresponse

• Reputation is the positive or negative Reputation is the positive or negative attribute ascribed by one rival to another attribute ascribed by one rival to another based on past competitive behaviorbased on past competitive behavior

• The firm studies responses that a The firm studies responses that a competitor has taken previously when competitor has taken previously when attacked to predict likely responsesattacked to predict likely responses


actionaction



MarketMarketdependencedependence


• Market dependence is:Market dependence is:– the extent to which a firm’s revenues the extent to which a firm’s revenues

or profits are derived from a particular or profits are derived from a particular market.market.

• In general, firms can predict that In general, firms can predict that competitors with high market competitors with high market dependence are likely to respond dependence are likely to respond strongly to attacks threatening their strongly to attacks threatening their market position.market position.


actionaction


Market DependenceMarket Dependence


Competitive Market Types

Slow, Standard, Fast Cycle

Outcomes

Slow cycle markets are frequently shielded by monopoly power or very strong brand loyalties.

This market outcome & lack of interfirm rivalry may lead to sustained competitive advantage.

Slow, Standard, Fast, Cycle

Model of Interfirm Rivalry: Outcomes

**




Outcomes



Firms with multi-market competition may dampen rivalry somewhat.

Sustained competitive advantage is a possible outcome in this instance.

Standard cycle markets often lead to highly competitive pressures despite world class products.




Outcomes



Fast cycle markets are intensely dynamic and a 1st mover advantage is often unsustainable.

Firms may cannibalize older generation product while introducing new innovative premium ones.

Sustainable competitive advantage is unlikely.


Sustained Competitive



Competitive Outcomes

AdvantageTemporary Advantage

Outcomes


**


Time (years) 5

Launch

ExploitationCounterattack

Returns from a

Competitive Advantage

Competitive Advantage Which Eventually Erodes


Time (years)10

Launch

Exploitation Counterattack

Returns from a

Competitive Advantage

5 15

Obtaining Temporary Advantages to Create Sustained Advantage


Time (years)10

Launch


Returns from a

Sustained Competitive Advantage

5 15

Firm has already moved on to Advantage No. 2



Time (years)10

Launch


Returns from a

Sustained Competitive Advantage

5 15

Firm continues to move on to the next Advantage


chapter 6

Business

competitive responses

engagedin competitive

competitive advantagesor

competitive interactions

competitive dynamicschapter

series of competitive

competitive dynamics

behaviourinterfirm rivalry