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Competitive Dynamics.

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Presentation on theme: "Competitive Dynamics."— Presentation transcript:

1 Competitive Dynamics

2 What is Competitive Dynamics?
COMPETITIVE DYNAMICS - Total set of actions and responses of all firms competing within a market COMPETITIVE RIVALRY - Ongoing set of competitive actions and competitive responses occurring between two competitors as they contend with each other for an advantageous market position Competitors: for example, FedEx and UPS compete against each other in several markets, including package delivery by land and air and emerging e-commerce and logistics markets. Rivalry influences a firm’s ability to gain sustained competitive advantages and affects the scope and nature of operations. Another way of looking at it is that a firm’s success is determined not only by the actions it takes, but also by how competitors respond and by how the firm anticipates and responds to competitors. Multimarket: For instance, Hilton and Marriot compete around the world, often side-by-side. Competitive actions in one market can elicit responses in other markets. DirecTV Cable

3 Competitor Analysis Who are your “competitors”? Market commonality
Resource similarity: financial, human, social, physical

4 Sun Tzu Now the general who wins a battle makes many calculations in his headquarters before he fights a battle. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory and few calculations to defeat. What need be said of no calculation at all?

5 Types of Competitive Action
Strategic Tactical Strategic: A market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse and long time horiz. Tactical: A market-based move that is taken to fine-tune a strategy Q: WHAT DO YOU THINK ARE SOME EXAMPLES OF STRATEGIC ACTIONS? TACTICAL ACTIONS? Strategic: acquisitions, alliances, major capacity expansions, restructuring, new product line or new type of service, subsidiary divestment, intl expansion, technology investments Tactical: price changes, marketing campaigns, new products and services within existing line, store openings/closings, servqual improvements. Tactical actions more likely to elicit a response. What results in the best firm performance, lots of strategic or lots of tactical actions? I think a mixture, with some strategic and lots of tactical.

6 Sun Tzu Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.

7 Attacks-First Mover Advantage
First Mover Advantages First Mover Disadvantages Famous cliché: “the early bird gets the worm.” Confederate General Nathan Bedford Forrest’s attack plan was to “git thar firstest with the moistest.” Sun Tzu: Those that occupy a battlefield first were at ease compared to those that arrive later. Advantages Creates a dominant position: KFC was the first Western restaurant chain in China and developed a strong bond with government officials. Overcome entry barriers: Genentech’s development of biotechnology allowed it to overcome pharmaceutical industry entry barriers (e.g., distribution networks). Smartwatch Review: Innovator: Apple creates a small, user-friendly PC in the 1980s, a reputation and corporate culture that persists to this day. Iconic: Sony created the Walkman and transistor radios, a reputation for being first and smallest Establish market share Build loyalty Create diseconomies of time Mold industry in your favor (create standards) Diadvantages Customer risk: Apple’s early attempts at the Personal Digital Assistant, the Newton Development cost: 3Com learned from Apple’s mistakes to build the Palm Pilot. Japanese electronics companies often imitate Sony. RCA & Westinghouse were first to develop active-matrix LCD displays, but they did not follow through to invest to the point of consumer development. Educating consumers: Uncertainty Creating internal buy-in Keeping a secret

8 Sun Tzu Those who arrive first at the battleground will have sufficient time to rest and prepare against the enemy. Those who arrive late at the battleground will have to rush into battle when they are already exhausted.

9 Footholds A small position that a firm intentionally establishes within a market in which it does not yet compete. How do firms use footholds? Footholds are useful for rock climbers looking for sure footing to ascend a difficult rock face as well as firms looking to gain positions in new markets. Ikea: opens a single store when entering a new country to “test the waters” and educate consumers. Merck: establishes a foothold by purchasing “SmartCells” a company developing new diabetes treatments. --To deter competition (as a threat) --To explore possibilities (as an experiment) --To launch activities (as a base) --To diversify risk (as a real option)

10 Sun Tzu Keep your friends close and your enemies closer.
May not be attributable to Sun Tzu, it is debated. Michael Corleonne may have been first to say it.

11 Competitive Response

12 Competitive Response Awareness Motivation Capability
Awareness: Like a patrolman walking the beat, firms must watch out for competitor’s moves that could steal market share. Think about Gillette and Schick, they are both highly awre of each other’s competitive moves because of high market commonality and resource similarity. Motivation: is affected by the extent to which the market share in peril is vital to your firm. Motivation will be low if the firm’s market position will not be damaged if they to not respond. Governance structures can affect motivation too: if firms are structured so that they are motivated toward short-term goals. What to stakeholders want from managers? This is the subject for tomorrow. Capability: Even if a firm is aware and motivated to engage, they may not be able to. WHAT MAKES A FIRM ABLE TO ENGAGE IN COMPETITION? They need financial slack, they need able managers. They need causal understanding. If resources are tied up owing to a recent acquisition or product development, they may not be able to move. Even if they have slack resources they could have the WRONG slack resources.

13 Competitive Response Speed of response. Multimarket Competition
Jack Welch: “Success in competitive rivalries is less a function of grandiose predictions than it is a result of being able to respond rapidly to real changes as they occur. Multimarket Competition Mutual Forbearance Speed: Slowness can crush a firm. RC Cola has been responsible for many innovations in soft drinks, including diet and caffeine-free colas, but quick responses from Coke and Pepsi have prevented them from taking advantage. When Coca-Cola introduced Vanilla Coke, it took Pepsi 15 months to respond and as a result it never took hold, whereas 1 in 3 households in America have purchased Vanilla Coke. In contrast, Pepsi Max was immediately met with Coke Zero, and the two are even steven. Multimarket: complicates matters. RJ Reynolds and Philip Morris compete in markets around the world. In the 1990s, RJR started using lower-priced cigarettes in the U.S. Philip Morris responded not only by matching their prices, but also by expanding in Eastern Europe where RJR was comparatively less strong. If MC is higher, will competitive activity be higher or lower? A firm with greater multimarket contact is less likely to initiate an attack, but more likely to more respond aggressively when attacked. Forbearance: Late 1990s Southwest and United squared off in some markets, but not others. United announced plans to form a new division that would move into many of the markets in which they did not yet compete with Southwest. S/W CEO Herb Kelleher then threatened to retaliate in there existing shared markets, and United backed down. Mutually Assured Destruction (MAD) Thailand story of not depressing prices in the region.

14 Sun Tzu If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.

15 Blue Ocean Strategies Executives try to create and exploit vast untapped markets rather than competing directly with rivals. Nintendo: Wii moves into nursing homes. Sun Tzu: An army should avoid its opponent’s strengths. For example, Cirque de Soleil avoids the traditional animal and trapeze acts in favor of blending opera and ballet. Coffee shops were once the domain of old men, insomniacs, and chain-smoking urban hipsters. Starbucks reinvented them, making a $4 latte a must-have item for college students, businesspeople, and soccer moms. At a time when cars were only for the wealthy, Henry Ford envisioned cars that were affordable for the typical American. He built and priced his vehicles so that assembly line workers could afford them. Ebay’s invention of online auctions extended the auction experience to anyone with Internet access, giving everyone the chance to buy that rare Elvis plate. Golf can be frustrating for even skilled players. Callaway’s creation of the Big Bertha club with an over-sized head made golf appealing to a whole new set of weekend warriors. An affordable wine for novice drinkers? Yellow Tail wines steered clear of wine snobs and sommeliers and instead created fun and simple tastes for the masses. Akin to being a “First Mover” but specifically applies to creating new market spaces rather than being the first to existing, known market spaces. Blue Ocean Strategy (probably do not use this): But wait, not so fast: Innovating in existing markets is effective Rivalry is a weak force Innovation does not need to be radical

16 Blue Ocean Strategies

17 Sun Tzu The greatest victory is that which requires no battle.
May not be attributable to Sun Tzu, it is debated. Michael Corleonne may have been first to say it.

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