lecture - 5 sm

8/16/2019 Lecture - 5 Sm

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Competitive Rivalry and

Competitive Dynamics

Ijaz Ahmed

8/16/2019 Lecture - 5 Sm


Definitions

Competitors

– Firms operating in the same market, offering similar products and

targeting similar customers.

• Southwest Airlines, Delta, United, Continental, and et!lue

• "epsiCo and Coca#Cola Compan$

Competiti%e &i%alr$

– 'he ongoing set of competiti%e actions and responses occurring

(etween competitors.

– 'he central, empirical fact in strateg$ is that some firmsoutperform others,

– Competiti%e ri%alr$ influences an indi%idual firm)s a(ilit$ to gain

and sustain competiti%e ad%antages.

8/16/2019 Lecture - 5 Sm


Definitions

Competiti%e !eha%ior

– 'he set of competiti%e actions and competiti%e

responses the firm takes to (uild or defend its

competiti%e ad%antages and to impro%e its market position.

*ultimarket Competition

– Firms competing against each other in se%eral product

or geographic markets.Competiti%e D$namics

– 'he total set of actions and responses taken ($ all firms

competing within a market.

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From Competitors to Competitive

Dynamics

Competitors • To gain an advantageous

market position

• Competitive Behavior•Competitive actions•Competitive responses


Competitive actions and responses taken by all

firms competing in a market

Engage

in

Why?

How?

What esults?

What esults?

Competitive

ivalry

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Competitive Rivalry’s Effect on

StrategySuccess of a strateg$ is determined ($+

– 'he firm)s initial competiti%e actions.

–

ow well it anticipates competitors) responses to them. – ow well the firm responds to its competitors) initial

actions.

Competiti%e ri%alr$+ – Affects all t$pes of strategies.

– as the strongest influence on the firm)s (usiness#le%el

strateg$ or strategies.

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A Model of Competitive Rivalry

Competitors feel each other)s actions and

responses.• intensified ri%alr$ within an industr$ results in decreased

a%erage profita(ilit$ for the competing firms

*arketplace success is a function of (oth

indi%idual strategies and the conse-uences of their

use.

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Competitive !nalysis• "arket commonality• esource similarity

Drivers of Competitive

Behavior• !wareness• "otivation• !bility

#nterfirm ivalry• $ikelihood of !ttack

• %irst&mover incentives• 'rgani(ational si(e

• )uality• $ikelihood of esponse

• Type of competitive action• eputation• "arket dependence

'utcomes•

"arket position• %inancial

performance

%eedback

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Competitor Analysis

Competitor anal$sis is used to help a firm understand its

competitors.

'he firm studies competitors) future o(jecti%es, current

strategies, assumptions, and capa(ilities.

ith the anal$sis, a firm is (etter a(le to predictcompetitors) (eha%iors when forming its competiti%e

actions and responses.

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*arket commonalit$ – /ach industr$ has %arious markets

– financial ser%ices industr$

• *arkets for insurance, (rokerage ser%ices, (anks

•*arket segments 0commercial1 consumer2, product segment 0health 1life2, geographic market 0/ast or est2

– transportation industr$

• the commercial air tra%el market differs from the ground

transportation market

&esource similarit$

determine the extent to which the firms are

competitors.

3 4556 "rentice all 78#9

Competitor Analysis

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Maret Commonality

*arket commonalit$ is concerned with+ – *arket segment, product segment, geographic segment

– 'he num(er of markets with which a firm and a competitor are

jointl$ in%ol%ed.

– 'he degree of importance of the indi%idual markets to each

competitor.

Firms competing against one another in se%eral or man$

markets engage in multimarket competition.

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A firm with greater multimarket contact is less likel$ to

initiate an attack, (ut more likel$ to respond more

aggressi%el$ when attacked.

*ultipoint competition tends to reduce competiti%e interactions, (ut increases the likelihood of response where interaction occurs

For e:ample, airlines price flights similarl$ (ut respond -uickl$

when competitors introduce promotional prices

Case of

telecom sector of "akistan

F*C;s, "aints, <awns

Maret Commonality

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Reso!rce Similarity

&esource Similarit$ – ow compara(le the firm)s tangi(le and intangi(le

resources are to a competitor)s in terms of (oth t$pes

and amounts.Firms with similar t$pes and amounts of resourcesare likel$ to+ – a%e similar strengths and weaknesses.

– Use similar strategies.

Assessing resource similarit$ can (e difficult ifcritical resources are intangi(le rather thantangi(le.

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Firms are less inclined to attack a

firm that is likel$ to retaliate

Firms with dissimilar resources

are more likel$ to attack

Firms with similar resources are

more likel$ to (e aware of each

other)s competiti%e mo%es

Reso!rce Similarity

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Drivers of Competitive Behavior

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Competitive !nalysis• "arket commonality• esource similarity

Drivers of Competitive

Behavior• !wareness• "otivation• !bility

#nterfirm ivalry• $ikelihood of !ttack

• %irst&mover incentives• 'rgani(ational si(e

• )uality• $ikelihood of esponse

• Type of competitive action• eputation• "arket dependence

'utcomes•

"arket position• %inancial

performance

%eedback

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Drivers of Competitive "ehavior

Awareness is – the e:tent to which competitors

recognize the degree of their

mutual interdependence thatresults from+

• *arket commonalit$

• &esource similarit$

– =omatsu, Caterpillar

– all#*art1 Carrefour

Awareness affects the e:tent to which the

firm understands the conse-uences of its

competiti%e actions and responses.

lack of awareness > negati%e effect

Awareness

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#cont’d$

*oti%ation concerns

– the firm)s incenti%e to takeaction

– or to respond to a competitor)s

attack

– and relates to percei%ed gains

and losses – Firm ma$ (e aware (ut not

moti%ated to engage in ri%alr$

Awareness

Motivation

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#cont’d$

A(ilit$ relates to – each firm)s resources

– the fle:i(ilit$ these resources

pro%ide

ithout a%aila(le resources

the firm lacks the a(ilit$ to

– attack a competitor – respond to the competitor)s

actions

Awareness

Motivation

Ability

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#cont’d$

A firm is more likely to attack

the ri%al with whom it has low

market commonalit$ than the one

with whom it competes inmultiple markets.

;i%en the strong competition

under market commonalit$, it is

likel$ that the attacked firm will

respond to its competitor)s action

in an effort to protect its position

in one or more markets.

Awareness

Motivation

MarketCommonali

ty

Ability

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#cont’d$

'he greater the resource im(alance

(etween the acting firm and

competitors or potential responders,the greater will (e the dela$ in

response ($ the firm with a resource

disad%antage.

hen facing competitors with greater

resources or more attracti%e market positions, firms should e%entuall$

respond, no matter how challenging

the response.

Awareness

Motivation

ResourceDissimilarit

y

Ability

MarketCommonali

ty

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Inter-firm Rivalry

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%nter&firm Rivalry

Competiti%e Action

– A strategic or tactical action the firm takes to (uild or

defend its competiti%e ad%antages or impro%e its

market position.

Competiti%e &esponse

– A strategic or tactical action the firm takes to counter

the effects of a competitor)s competiti%e action.

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Strategic and 'actical Actions

Strategic Action 0or &esponse2

– A market#(ased mo%e that in%ol%es a significant

commitment of organizational resources and is difficult

to implement and re%erse.

'actical Action 0or &esponse2

– A market#(ased mo%e that is taken to fine#tune a

strateg$+

• Usuall$ in%ol%es fewer resources.

• Is relati%el$ eas$ to implement and re%erse.

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Factors Affecting (ielihood of

Attac

First mo%ers allocate funds for+

– "roduct inno%ation and de%elopment

– Aggressi%e ad%ertising

– Ad%anced research and de%elopment

First mo%ers can gain+

– 'he loyalty of customers who ma$

(ecome committed to the firm)s goods

or ser%ices.

– "arket share that can (e difficult forcompetitors to take during future

competiti%e ri%alr$.

First-MoverIncentives

First Mover

A firm that taes an initial

competitive action in order

to )!ild or defend its

competitive advantages or

to improve its maret

position.

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Attac #cont’d$

Second mo%er responds to the first

mo%er)s competiti%e action, t$picall$

through imitation+

– Studies customers) reactions to product

inno%ations.

– 'ries to find an$ mistakes the first

mo%er made, and a%oid them.

–Can a%oid (oth the mistakes and thehuge spending of the first#mo%ers.

– *a$ de%elop more efficient processes

and technologies.

First Mover

SecondMover

Incentives

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Attac #cont’d$

Small firms are more likel$+

– 'o launch competiti%e actions.

– 'o (e -uicker in doing so.

Small firms are percei%ed as+

– ?im(le and fle:i(le competitors

– &el$ing on speed and surprise to

defend competiti%e ad%antages or

de%elop new ones while engaged incompetiti%e ri%alr$.

– a%ing the fle:i(ilit$ needed to launch

a greater %ariet$ of competiti%e

actions.

First Mover

SecondMover

Organiational Sie-Small

Late Mover

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Attac #cont’d$

<arge firms are likel$ to initiate more

competiti%e actions as well as strategic

actions during a gi%en time period

<arge organizations commonl$ ha%ethe slack resources re-uired to launch

a larger num(er of total competiti%e

actions

'hin and act )ig and we’ll get

smaller. 'hin and act small and we’ll

get )igger .

er( =elleher Former C/@,

Southwest Airlines

First Mover

Second

Mover

Organiational Sie-Large

Late Mover

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Attac #cont’d$

ualit$ e:ists when the firm)s goods or

ser%ices meet or e:ceed customers)

e:pectations # in entire %alue chain

Customer interest in product -ualit$dimensions include+

First Mover

Second

Mover

!uality"#roduct$

Late Mover

Organiational Sie

"erformance

Features

Fle:i(ilit$

Dura(ilit$

Conformance

Ser%icea(ilit$

Aesthetics

"ercei%ed

-ualit$

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Quality Dimensions of Goods and Services

*roduct )uality Dimensions

7. Performance B@perating characteristics

4. Features BImportant special characteristics

. Duraility BAmount of use (efore performance deteriorates

. Conformance B*atch with pre#esta(lished standards

6. Serviceaility B/ase and speed of repair

8. !esthetics Bow a product looks and feels

*. Perceived "uality BSu(jecti%e assessment of characteristics 0product

image2

Competitor will fix iss!es in +!ality for reven!es, will engage in rivalry

after solving +!ality iss!es

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Attac #cont’d$

Ser%ice -ualit$ dimensionsinclude+

– 'imeliness

– Courtes$

–

Consistenc$ – Con%enience

– Completeness

– Accurac$

First Mover

SecondMover

!uality"Service$

Late Mover

Organiational Sie

8/16/2019 Lecture - 5 Sm


+ervice )uality Dimensions

7. #imeliness B"erformed in the promised period of time

4. Courtesy B"erformed cheerfull$

. Consistency B;i%ing all customers similar e:periences each time

. Convenience BAccessi(ilit$ to customers

6. Completeness BFull$ ser%iced, as re-uired

8. !ccuracy B"erformed correctl$ each time

Quality Dimensions of Goods and Services

8/16/2019 Lecture - 5 Sm



Response

Firms stud$ three other factors to predict how a

competitor is likel$ to respond to competiti%e

actions+

– '$pe of competiti%e action

– &eputation

– *arket dependence

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Factors Affecting Strategic

Response

Strategic actions recei%e strategic

responses

– Strategic actions elicit fewer total

competiti%e responses. – 'he time needed to implement and

assess a strategic action dela$s

competitor)s responses.

'actical responses are taken to

counter the effects of tactical

actions

– A competitor likel$ will respond

-uickl$ to a tactical actions

%y&e o'Com&etitive

Action

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Response #cont’d$

An actor is the firm taking an

action or response

&eputation is the positi%e ornegati%e attri(ute ascri(ed ($ one

ri%al to another (ased on past

competiti%e (eha%ior.

'he firm studies responses that acompetitor has taken pre%iousl$

when attacked to predict likel$

responses.

%y&e o'Com&etitive

Action

Actor(sRe&utation

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!ctor,s eputation

*arket leaders are more likel$ to (e copied *arket leaders are more likel$ to (e copied

E&isk taking firms are less likel$ to (e copiedE&isk taking firms are less likel$ to (e copied

E"rice "redators are less likel$ to (e copiedE"rice "redators are less likel$ to (e copied

%)e *rm wit) a re&utation as a &rice &redator "an actor t)at're+uently reduces &rices to gain or maintain market s)are$

generates 'ew res&onses to its &ricing tactical actions because&rice &redators, w)ic) ty&ically increase &rices once t)eir market

s)are obective is reac)ed

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Response #cont’d$

*arket dependence is the e:tent to

which a firm)s re%enues or profits

are deri%ed from a particularmarket.

In general, firms can predict that

competitors with high market

dependence are likel$ to respondstrongl$ to attacks threatening their

market position.

%y&e o'Com&etitive

Action

Actor(sRe&utation

De&endenceon t)emarket

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"arket Dependence

Competitor esources

Smaller firms are more likel$ to respond to tactical actionsSmaller firms are more likel$ to respond to tactical actions

<imited resources ma$ lead to alternati%es such as StrategicAlliances

<imited resources ma$ lead to alternati%es such as Strategic

Alliances

-auging the $ikelihood of esponse

Firms that are more dependent on a single industr$ are more

likel$ to respond than are di%ersified firms

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Competitive Dynamics vers!s

Rivalry

Competiti%e D$namics

– @ngoing actions and responses taking place (etween all

firms competing within a market for ad%antageous

positions.

Competiti%e &i%alr$

– @ngoing actions and responses taking place (etween an

individual firm and its competitors for ad%antageous

market position.

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Competiti%e ad%antages are shielded

from imitation for long periods of

time and imitation is costl$.

Competiti%e ad%antages are

sustaina(le in slow#c$cle markets.

All firms concentrate on competiti%eactions and responses to protect,

maintain and e:tend proprietar$

competiti%e ad%antage.

Slow-CycleMarkets

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Gradual $rosion of a Sustained Competitive !dvanta%e

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Slow Cycle Maret

Slow c$cle markets are fre-uentl$ shielded ($

monopol$ power or %er$ strong (rand lo$alties

'his market outcome and lack of inter#firm ri%alr$

ma$ lead to sustained competiti%e ad%antage

*icke$ mouse, *innie mouse, ;oof$

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Competitive Dynamics #cont’d$

'he firm)s competiti%e ad%antages

aren)t shielded from imitation.

Imitation happens -uickl$ and

somewhat e:pensi%el$

Competiti%e ad%antages aren)t

sustaina(le.

– Competitors use re%erse engineering to

-uickl$ imitate or impro%e on the firm)s

products

?on#proprietar$ technolog$ is

diffused rapidl$

Slow-CycleMarkets

Fast-CycleMarkets

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Fast Cycle Marets

Fast c$cle markets are intensel$ d$namic and a first mo%er

ad%antage is often unsustaina(le

Firms ma$ canni(alize older generation products whileintroducing new inno%ati%e premium products

Sustaina(le competiti%e ad%antage is unlikel$

"rices fall rapidl$

<o$alt$ not de%eloped

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Developin% #emporary !dvanta%es to Create Sustained

!dvanta%e

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Competitive Dynamics #cont’d$

*oderate cost of imitation ma$

shield competiti%e ad%antages.

Competiti%e ad%antages are partiall$

sustaina(le if their -ualit$ is

continuousl$ upgraded.

Firms

– Seek large market shares

– ;ain customer lo$alt$ through (rand

names

– Carefull$ control operations

Slow-CycleMarkets

Fast-CycleMarkets

Standard-CycleMarkets

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Standard Cycle Marets

Standard c$cle markets often lead to highl$

competiti%e pressures despite world class products

Firms with multimarket competition ma$ dampen

ri%alr$ somewhat

Sustained competiti%e ad%antage is a possi(leoutcome in this instance

8/16/2019 Lecture - 5 Sm


lecture - 5 sm

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