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. From Competitors to Competitive Dynamics (Figure 5.1)

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. 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. 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. A Model of Competitive Rivalry (Figure 5.2)

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. 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. 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. A Framework of Competitor Analysis

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. 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. 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. 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. 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. 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. 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. 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. Gradual Erosion of a Sustained Competitive Advantage

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. Developing Temporary Advantages to Create Sustained Advantage

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