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Miles A. Zachary MGT 4380. Simulation Overview Lecture Competitive Dynamics Competitive Moves Cooperative Moves Paper/Presentation Overview Simulation.

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Presentation on theme: "Miles A. Zachary MGT 4380. Simulation Overview Lecture Competitive Dynamics Competitive Moves Cooperative Moves Paper/Presentation Overview Simulation."— Presentation transcript:

1 Miles A. Zachary MGT 4380

2 Simulation Overview Lecture Competitive Dynamics Competitive Moves Cooperative Moves Paper/Presentation Overview Simulation

3 Competitive dynamics is the study of how firm action (moves) affects competitors, competitive advantage, and performance Includes: First-mover advantage Entrainment Disruptive innovation Blue ocean strategy Footholds Bricolage Self-displacement

4 First-mover firms enter a market before other firms and tend to reap distinct benefits First-mover advantage results when a first-moving firm is able to develop a dominant position in a developing market First-movers may be able to establish early brand recognition and build strong customer loyalty But, first-mover firms may have trouble establishing a competitive advantage: Lack of institutional environment High marketing/advertising expenses Consumers slow to adopt product Easy imitation

5 Entrainment strategy suggests that firms should time their internal processes with external (environmental) trends Alternative theory to FMA; argues that while first- moving may be viable in some situations, it is not always optimal Firms looking to entrain should be aware of dominant external pacers that are likely to direct consumers to their products Ex.-Holiday movies release near their target holiday

6 Original research from Zachary & Payne

7 Rooted in the concept of Schumpeterian innovation (destructive) “[G]ale of creative destruction” – Joseph Schumpeter Firms may have an opportunity to disrupt an existing market by creating a new product/technology Competence-destroying innovations-major shift in technology; destroy existing firm’s product effectiveness Competence-enhancing innovations-increase the efficiency of an existing product or technology Firms able to effectively combine FMA and disruptive innovations are in a unique position to capture competitive advantages (e.g., Apple’s iPad) This is rare as most innovations are not so quickly adopted Firms must weigh their effectiveness in the new environment and whether they can sustain themselves during the slow growth

8 A blue ocean strategy attempts to create a new, untapped market rather than competing with rivals in an existing market Tries to make competition irrelevant Firms create new products to reach previously ignored sets of consumers Ex.-Nintendo developed alternative games that appeal to traditionally non-gaming consumers Ex.-Casella wines (Yellowtail) appealed to traditionally non-wine drinking crowds, creating a new consumer base

9 Footholds are small positions firms intentionally create in a market in which it does not already compete Similar to climbing, firms use strategic footholds to anchor a new position in a market to exploit Can include either geographical positioning or market positioning Footholds may ward off potential competitors by establishing an early position or staking geographical claims Ex.-Allsups convenient stores build locations in small towns to establish geographical advantages and discourage other stores from entering the limited market

10 A bricolage strategy describes using available resources in a unique combination to generate a new product or market Bricolage can help firms overcome problems associated with limited resources Successful bricolage can help create strategic resources Ex.-Oo-La-Latte’s in Lubbock combined the ideas of a coffee shop with the sex appeal of Hooter’s Ex.-Alamo Brewhouses combine traditional movie theaters with pub grub and atmosphere However, if the resources are widely available to competitors, imitation may limit the competitive advantages of bricolage

11 Self-displacement involves a leader firm moving aside and allowing a competitor to occupy a market leadership position in order to continue to develop new competitive advantages Some scholars suggest that this is likely an optimal situation for firms as a result of the added costs associated with increasing the speed of innovation (time compression diseconomies) Only in situations where the innovation has high competitive value and low market value should a firm self-renew (speed up innovation)

12 Firms must often determine adequate responses to competitor actions; very difficult to decide Likelihood of response is a factor of: Awareness Motivation Capability Responding firms must be aware of their competitor’s actions, motivated to respond, and capable of mounting a competitive response Ex.-Schick introduces Quattro brand => Gillette preempts move and introduces Sensor 3 and Venus Devine

13 The characteristics of a competitor’s action are important predictors of competitive response Radicality-extent to which an action departs from existing norms Magnitude-amount of resources needed to implement the action Scope-number of competitors affected Degree of threat-severity of affect Such characteristics predict: Response likelihood-p(response) Response speed-how fast a firm responds Response order-order within industry of response

14 Response could also be artifact of a firm’s competitive repertoire—a firm’s entire set of competitive action carried out in a given year CR simplicity-an overwhelming preoccupation with a single type of action CR non-conformity-tendency for action to depart from industry norms CR inertia-level of activity a firm exhibits when altering its competitive stance The state of a firm’s competitive repertoire may affect how capable a firm is of responding to competitor action

15 When firms compete in multiple markets, executives must consider the effects on each market when crafting actions and responses Mutual forbearance occurs when rivals do not act aggressively because each firm recognizes the other could retaliate in multiple markets Awareness of mutual forbearance can help firms decide if and when to attack another firm; often, it dissuades firms from pursuing action Ex.-United Airlines announces new routes in notoriously Southwest Airline’s territory => SW publically announces counteraction => nothing happened and both firms benefited

16 In the event a firm’s action creates a disruptive innovation (competence-destroying), firms choose from three (3) general responses Ignore the innovation-when firms believe the interruption is temporary Respond on a different dimension-firms may respond to competitor action by acting on another line Match the competitor move-respond directly by cannibalizing its traditional business; may attract new customer segments

17 When competitors attempt to lure a firm’s customers away with lower prices, firms may be tempted to lower prices to compete Good idea in the short-run; bad in the long-run May be difficult to increase prices in the future A fighting brand is a lower-end brand that a firm introduces to protect the firm’s market share without damaging an existing brand Ex.-GM’s Geo brand competes with inexpensive Japanese models Some fighting brands are short-lived

18 Firms can sometimes benefit more by cooperating rather than competing Joint ventures Strategic alliances Co-location Cooptition Cooperating firms are able to share resources and lean on each others’ strengths However, some firms lose control over operations, share valuable secrets, and may be exploited by partners

19 A joint venture is a cooperative arrangement that involves two or more firms each contributing to the new entity Joint ventures allow firms to capitalize on shared opportunities and threats

20 A strategic alliance involves a cooperative arrangement between two or more organizations that does NOT result in the creation of a new entity While many industries have strategic alliances, the pharmaceutical industry has many

21 Co-location refers to a situation in which goods and services offered under different brands are located in close proximity By giving customers with a variety of choices, co- located firms can attract larger customer segments collectively

22 Co-optition highlights a complex interaction that involves cooperating and competing Cooperate early in the value chain Compete later in the value chain Highlights how firms have different relationships with other firms Customer Supplier Competitor

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