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1 Chapter 5: Competitive Rivalry and Competitive Dynamics Overview: Competitors, competitive rivalry, competitive behavior and competitive dynamics Market.

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Presentation on theme: "1 Chapter 5: Competitive Rivalry and Competitive Dynamics Overview: Competitors, competitive rivalry, competitive behavior and competitive dynamics Market."— Presentation transcript:

1 1 Chapter 5: Competitive Rivalry and Competitive Dynamics Overview: Competitors, competitive rivalry, competitive behavior and competitive dynamics Market commonality and resource similarity: Building blocks of competitor analysis Competitive actions: Awareness, motivation and ability Factors driving competitor’s competitive actions Competitor’s response to actions taken against it Competitive dynamics in slow, fast and standard- cycle markets

2 2 From Competitors to Competitive Dynamics (Figure 5.1)

3 3 Introduction and Definitions Competitors Firms operating in the same market, offering similar products and targeting similar customers Competitive Rivalry Ongoing set of competitive actions and competitive responses occurring between competitors as they contend with each other for an advantageous market position Competitive Dynamics The total set of actions and responses of all firms competing within a market

4 4 Competitive Rivalry Competitive Behavior (offensive and defensive) Set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position Competitive Action Strategic or tactical action firm takes to build or defend its competitive advantages or improve its market position Competitive Response Strategic or tactical action the firm takes to counter effects of a competitor's action

5 5 Competitive Rivalry What are the strategic and tactical actions? Strategic actions/responses: market-based moves that signify a significant commitment of organizational resources to pursue a specific strategy Difficult to implement and reverse Tactical actions/responses: market-based moves that involve fewer resources to fine-tune a strategy that is already in place Easier to implement and reverse

6 6 A Model of Competitive Rivalry (Figure 5.2)

7 7 Competitor Analysis and Competitive Rivalry Competitor Analysis (Chapter 2) Is the first step to understanding competitive rivalry and identifying who your direct competitors are Involves collecting competitive intelligence Focuses on trying to predict competitors’ behavior The question: ‘To what extent are firms competitors’? 2 components to assess Market Commonality Resource Similarity Direct competitors have high market commonality & high resource similarity

8 8 Competitor Analysis and Competitive Rivalry Market Commonality The number of markets with which the firm and a competitor are jointly involved and the degree of importance of the individual markets to each Each industry composed of various markets which can be subdivided into segments Example: Automobile industry Greater market commonality results in greater rivalry Firms may also compete against one another in several or many product and geographic markets Multimarket Competition Firms with greater multimarket contact are less likely to attack but more likely to respond when attacked

9 9 Competitor Analysis and Competitive Rivalry Resource Similarity Extent to which firm’s tangible/intangible resources are comparable to competitor’s in type and amount Can result in similar strengths and weaknesses and similar strategies being pursued The more similar the types and amounts of resources the more direct the competition is between two firms

10 10 A Framework of Competitor Analysis

11 11 3 Drivers of Competitive Actions/Responses Awareness Extent competitors recognize degree of mutual interdependence that results from market commonality and resource similarity Greatest when firms have highly similar resources Affects the extent to which the firm understands the consequences of its competitive actions and responses A lack of awareness can lead to excessive competition

12 12 3 Drivers of Competitive Actions/Responses Motivation Firm's incentive to take action, or to respond to a competitor's attack, as it relates to perceived gains and losses A firm is more likely to attack a rival with whom it has low market commonality Responses are more likely to occur when market commonality is high Ability Firm's resources that allow competitive action and flexibility to respond Without available resources a firm lacks the ability to respond

13 13 Additional Factors Affecting the Likelihood of Attack First Mover Incentives Firm that takes an initial competitive action to build or to defend its competitive advantages or to improve its market position Second Movers Late Movers Quality Customer perception that the firm's goods or services perform in ways that are important to customers, meeting or exceeding expectations Lower quality = lower attack/response likelihood

14 14 Additional Factors Affecting the Likelihood of Attack Organizational Size Affects the likelihood of competitive actions as well as the types and timing of them Small firms More likely to launch competitive actions Are more flexible, nimble, and quicker Initiate a greater variety of competitive actions Large firms Initiate more competitive actions with more strategic actions during a given period Tend to limit the types of competitive actions used

15 15 Additional Factors Affecting the Likelihood of Response Types and effectiveness of the competitive action Strategic actions Receive strategic responses Elicit fewer responses due to resources committed and required Tactical actions Receive tactical responses Elicit much faster responses Dependence on the Market Extent to which a firm's revenues or profits are derived from a particular market High market dependence = more likely to respond

16 16 Additional Factors Affecting the Likelihood of Response Actor’s Reputation Actor: Firm taking an action or response (in the context of competitive rivalry) Reputation: positive or negative attribute ascribed by one rival to another based on past competitive behavior Firms are more likely to respond to market leaders (firms with good reputations) Past behavior is also a useful predictor of future behavior Firms are less likely to respond to a company with a reputation for risky, complex, and unpredictable behavior

17 17 Competitive Dynamics and Market Cycles Competitive Dynamics: Total set of actions and responses of all firms competing within a market Competitive dynamics differ in slow-cycle, fast- cycle, and standard-cycle markets The sustainability of a firm’s competitive advantages also differs across the three market types Thus, competitive speed differs across markets and this effects competitive dynamics

18 18 Competitive Dynamics: 3 Market Cycles Slow-Cycle Markets Markets in which the firm's competitive advantages are shielded from imitation for long periods of time, and in which imitation is costly Build a one-of-a-kind competitive advantage which creates sustainability Once a proprietary advantage is developed, competitive behavior should be oriented to protecting, maintaining, and extending that advantage

19 19 Gradual Erosion of a Sustained Competitive Advantage

20 20 Competitive Dynamics: 3 Market Cycles Fast-Cycle Markets Markets in which the firm's capabilities that contribute to competitive advantages are not shielded from imitation and where imitation is often rapid and inexpensive Competitive advantages are not sustainable in fast-cycle markets Focus: learning how to rapidly and continuously develop new competitive advantages that are superior to those they replace (creating innovation) Continually try to move on to another temporary competitive advantage before competitors can respond to the first one

21 21 Developing Temporary Advantages to Create Sustained Advantage

22 22 Competitive Dynamics: 3 Market Cycles Standard-Cycle Markets Markets where firm’s competitive advantages are moderately shielded from imitation and where imitation is moderately costly Competitive advantages partially sustained as quality is continuously upgraded Seek to serve many customers and gain a large market share Gain brand loyalty through brand names Careful operational control / manage a consistent experience for the customer


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