CH5 Competitive rivalry and competitive dynamics

attacks

A strategy's success is determined not only by the firm's initial competitive actions, but also by how well it anticipates competitors' responses to them and by how well the firm responds to its competitor's initial actions (also called _____).

Competitors

Firms operating in the same market with similar products targeting similar customers are

Competitive rivalry

ongoing set of competitive actions and competitive responses occurring between rivals as they compete against each other for an advantageous market position.

influences an individual firm's ability to gain and sustain competitive advantages.

Competitive Behavior

Set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position.

Multimarket Competition

Firms competing against each other in several product/geographic markets are in

Competitive Dynamics

All competitive behavior—that is, the total set of actions and responses taken by all firms competing within a market—is called

To gain an advantageous market position

Competitors engage in competitive rivalry (Why?)

Competitive behavior

- Competitive actions

- Competitive responses

Competitors engage in competitive rivalry (How?)

Competitive dynamics

- Competitive actions and responses taken by all firms competing in a market

Competitors engage in competitive rivalry (What results?)

· Bringing new goods and services to market more quickly

· The use of new technologies

· Diversifying the product line

· Shifting product emphasis

· Consolidation

· Combining online selling with physical stores

Firms must learn to compete differently if they are to achieve strategic competitiveness. To provide an idea of what this means, new ways of competing may include the following:

geographic scope

Expanding _____ contributes to the increasing intensity in competitive rivalry among firms. That is, firms trying to predict competitive rivalry should anticipate that they will meet a larger number of increasingly diverse competitors in the future; thus, competitive rivalry will affect their strategies more than in the past.

Competitive rivalry

____ exists when firms jockey with one another to pursue an advantageous market position. When one or more firms competing in an industry feels pressure to act or perceives an opportunity to improve their competitive position, ____ occurs as various firms initiate a series of actions and responses.

True

Research findings showing that intensified rivalry within an industry results in decreased average profitability for firms competing in it and supports the importance of understanding these effects.

- the firm's initial competitive actions.

- how well it anticipates competitors' responses to them.

- how well the firm anticipates and responds to its competitors' initial actions.

Success of a strategy is determined by:

Competitive rivalry:

- affects all types of strategies.

- has a dominant influence on the firm's business-level strategy or strategies.

Competitive Rivalry's Effect on Strategy

Competitive analysis (Market commonality and Resource similarity)

Drivers of competitive behavior (awareness, motivation, and ability to attack or respond)

Competitive rivalry (likelihood of attack and response)

Outcomes (market position and financial performance)

Feedback

A Model of Competitive Rivalry

Competitive Analysis

- Market commonality

- Resource similarity

Interfirm rivalry or competitive dynamics begins with _____ in terms of ______

a firm's:

awareness

motivation

ability to attack or respond.

Market commonality and resource similarity affect the drivers of competitive behavior which are

First-mover benefits

Organizational size

Quality

Competitive Rivalry (Likelihood of attack)

Type of competitive action

Actor's reputation

Market dependence

Competitive Rivalry (Likelihood of response)

Market position

Financial performance

Attack and responses to attack result in competitive outcomes which are

Feedback

______ from competitive outcomes will affect future competitive dynamics.

a firm's competitive actions have noticeable effects on its competitors.

a firm's competitive actions elicit competitive responses from its competitors.

competitors feel each other's actions and responses.

Firms are mutually interdependent when:

Marketplace success

is a function of both individual strategies and the consequences of their use.

competitive asymmetry

Competitive rivalry exists because of ______, which describes the fact that firms differ from one another in terms of their resources, capabilities, core competencies, and the opportunities and threats in their competitive environments and industries.

mutual interdependence

It is important that firms see that competition results in ____ among firms in the industry as each firm tries to establish a sustainable competitive advantage.

True

As firms strive to achieve strategic competitiveness and above-average returns, they must recognize that strategies are not deployed in isolation from rival's actions and responses.

strategic management process

represents firms taking a series of actions, fending off counter-actions or responses and developing responses of their own.

Competitor Analysis

the first step in predicting the extent and nature of rivalry with each competitor

used to help a firm understand its competitors.

The firm studies competitors'

-future objectives

-current strategies

-assumptions

-capabilities.

With this, a firm is better able to predict competitors' behaviors when forming its competitive actions and responses.

Market Commonality

-the extent to which firms compete in the same markets.

-is increasing as more and more firms compete internationally.

It is concerned with the:

-number of markets with which a firm and a competitor are jointly involved.

-degree of importance of the individual markets to each competitor.

multipoint competition

If firms overlap in a number of markets—sometimes referred to as ________—this results in a situation where firms compete against each other simultaneously in multiple geographic or product markets.

This can have a significant impact on competitive dynamics (e.g., expanding into a new market that the competitor has entered to ensure that the rival does not tap a market opportunity that could then be used to support competition in core markets).

True

high levels of commonality reduce the likelihood of competitive interaction.

True

A firm with greater multimarket contact is less likely to initiate an attack, but more likely to more respond aggressively when attacked.

Resource Similarity

extent to which a firm's tangible and intangible resources are comparable to a competitor's in terms of both type and amount.

-have similar strengths and weaknesses.

-use similar strategies.

Firms with similar types and amounts of resources are likely to:

True

Assessing resource similarity is difficult if critical resources are intangible, rather than tangible.

True

dissimilar resources may increase the likelihood of an attack

firms with similar resources (overlap between their resource portfolios) will be less likely to attack because resource similarity increases the likelihood of retaliation.

Awareness

the extent to which competitors recognize the degree of their mutual interdependence that results from:

- market commonality

- resource similarity

Motivation

represented by the incentives that a firm has to either initiate an attack or to respond when attacked.

relates to perceived gains and losses

Ability

relates to:

- each firm's resources

- the flexibility that these resources provide

Without available resources the firm cannot:

- attack a competitor

- respond to the competitor's actions

Resource Dissimilarity

The greater the resource imbalance between the acting firm and competitors or potential responders, the greater will be the delay in response by the firm with a resource disadvantage.

When facing competitors with greater resources or more attractive market positions, firms should eventually respond, no matter how challenging the response.

Market Commonality

A firm is more likely to attack the rival with whom it has low market commonality than the one with whom it competes in multiple markets.

Given the strong competition under market commonality, it is likely that the attacked firm will respond to its competitor's action in an effort to protect its position in one or more markets.

Competitive rivalry

ongoing set of competitive actions and responses occurring between competing firms for an advantageous market position.

Competitive Action

A strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position.

Competitive Response

A strategic or tactical action the firm takes to counter the effects of a competitor's competitive action.

strategic action or strategic response

market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse.

tactical action or tactical response

market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse.

First Mover Incentives

Organizational Size

Quality

Factors Affecting Likelihood of Attack

First movers

firms that take an initial competitive action, either strategic or tactical, in order to build or defend its competitive advantages or to improve its market position.

firms that have the resources, capabilities, and core competencies that enable them to gain a competitive advantage through innovative and entrepreneurial competitive actions.

product innovation and development

aggressive advertising

advanced research and development

First movers allocate funds for:

above-average returns until competitors respond effectively

the loyalty of customers who may become committed to the firm's goods or services (thus creating a barrier to entry by competitors)

market share that can be difficult for competitors to take during future competitive rivalry

First movers can gain:

Organizational slack

_______ is what makes it possible for firms to have the ability (as measured by available resources) to be first movers.

Slack

is the buffer or cushion provided by actual or obtainable resources that aren't currently in use.

it is a liquid resource that the firm can quickly allocate to support the actions (e.g., R&D investments and aggressive marketing campaigns) that lead to first mover benefits.

· It is difficult to accurately estimate the returns that will be earned from introducing product innovations.

· The first mover's cost to develop a product innovation can be substantial, reducing the slack available to support further innovation.

· Lack of product acceptance over the course of the competitor's innovations may indicate less willingness in the future to accept the risks of being a first mover.

dangers or disadvantages to being a first mover

Second movers

firms that respond to a first mover's competitive action, typically through imitation.

study customers' reactions to product innovations

try to find any mistakes the first mover made, and avoid them

can avoid both the mistakes and the huge spending of the first-movers

may develop more efficient processes and technologies

Second mover responds to the first mover's competitive action, typically through imitation. They:

Late movers

firms that respond to competitive actions, but only after considerable time has elapsed after the first mover's action, and the second mover's response.

True

any success achieved from the late competitive response tends to be slow in coming and considerably less than that achieved by first and second movers.

Late mover's competitive action allows it to earn only average returns and delays its understanding of how to create value for customers

organization's size

An ___ affects the likelihood that it will take competitive actions as well as the types of actions it will take and their timing.

Small firms

_____ are more likely to:

-launch competitive actions

-be quicker in doing so

These firms are perceived as:

-nimble and flexible competitors

-relying on speed and surprise to defend competitive advantages or develop new ones while engaged in competitive rivalry

-having the flexibility needed to launch a greater variety of competitive actions

Large firms

are likely to initiate more competitive actions as well as strategic actions during a given time period.

commonly have the slack resources required to launch a larger number of total competitive actions

Quality

exists when the firm's goods or services meet or exceed customers' expectations

Product quality

_____ shapes the competitive dynamics in many industries. In fact, ____ is no longer a competitive issue but a necessary or mandatory product attribute if firms expect to successfully implement any of the generic business strategies.

· The firm studying a competitor with poor quality products can predict that the competitor's costs are highvand that its sales revenue will likely decline until the quality issues are resolved.

· The firm can predict that the competitor is unlikely to be aggressive in terms of taking competitive actions, given that its quality problems must be corrected in order to gain credibility with customers.

· Once corrected, the competitor will likely act by emphasizing additional dimensions of competition.

Quality affects competitive rivalry.

performance

features

flexibility

durability

conformance

serviceability

aesthetics

perceived quality

pff dc saf

Product quality dimensions

Performance

Operating characteristics (product quality dimension)

Features

Important special characteristics (product quality dimension)

Flexibility

Meeting operating specifications over some period of time (product quality dimension)

Durability

Amount of use before performance deteriorates (product quality dimension)

Conformance

Match with pre-established standards (product quality dimension)

Serviceability

Ease and speed of repair (product quality dimension)

Aesthetics

How a product looks and feels (product quality dimension)

Perceived quality

Subjective assessment of characteristics (product image) (product quality dimension)

Timeliness

Courtesy

Consistency

Convenience

Completeness

Accuracy

TC4A

Service Quality Dimensions

Timeliness

Performed in the promised period of time (service quality dimension)

Courtesy

Performed cheerfully (service quality dimension)

Consistency

Giving all customers similar experiences each time (service quality dimension)

Convenience

Accessibility to customers (service quality dimension)

Completeness

Fully serviced, as required (service quality dimension)

Accuracy

Performed correctly each time (service quality dimension)

leads to better use of the competitor's capabilities to gain or produce stronger competitive advantages or an improvement in its market position.

damages the firm's ability to use its capabilities to create or maintain an advantage.

makes the firm's market position becomes less defensible.

Likelihood of Response

Responses to a competitor's action are taken when the action:

· Market commonality and resource similarity

· Awareness, motivation, and ability

· Type of competitive action, reputation, and market dependence

To predict how a competitor is likely to respond to competitive actions, firms should consider

Strategic actions elicit fewer total competitive responses.

The time needed to implement and assess a strategic action delays competitor's responses

Strategic actions receive strategic responses (Type of Competitive Action)

A competitor likely will respond quickly to a tactical actions.

Tactical responses are taken to counter the effects of tactical actions (Type of Competitive Action)

1. actor

2. Reputation

Actor's Reputation

An _____ is the firm taking an action or response.

____ is the positive or negative attribute ascribed by one rival to another based on past competitive behavior.

The firm studies responses that a competitor has taken previously when attacked to predict likely responses.

· Actions initiated by firms with a previous history of success also will be more likely to result in quick reactions and imitation.

· Actions taken by firms with reputations for risk-taking and for initiating complex and unpredictable actions are less likely to be responded to.

· Actions taken by price predators (firms who cut prices to capture market share and then raise prices) are seen as having a negative effect on competitors and their actions receive only minimal response and imitation.

Some likely effects of reputation are the following:

Market dependence

denotes the extent to which a firm's revenues/profits are derived from a particular market.

Firms that are highly concentrated in—or dependent on—an industry (or market) in which a competitive action has been taken are more likely to respond than are firms who do business in multiple industries and markets.

Competitive Rivalry

concerns the ongoing actions and responses between a firm and its competitors for an advantageous market position

Competitive Dynamics

concerns the ongoing actions and responses taking place among all firms competing within a market for advantageous positions.

Market commonality and resource similarity

Awareness, motivation and ability

First mover incentives, size and quality

Competitive Rivalry (Individual firms)

Market speed (slow-cycle, fast-cycle, and standard-cycle

Effects of market speed on actions and responses of all competitors in the market

Competitive Dynamics (All firms)

Slow-cycle Markets

those in which the firm's competitive advantages are shielded from imitation, often for long periods of time, and where imitation is costly.

True

Slow-cycle Markets

Competitive advantages are sustainable in slow-cycle markets.

All firms concentrate on competitive actions and responses to protect, maintain and extend proprietary competitive advantage.

· Returns from the competitive action increase during the early, launch years of the strategy.

· When returns level out, the firm exploits its position.

· Competitors counterattack or launch strategies that cause the first firm's bases for competitive advantage to erode. As a result, returns are competed away.

Gradual Erosion of a Sustained Competitive Advantage

Fast-cycle Markets

those in which the firm's competitive advantages aren't shielded from imitation

and where imitation happens quickly and somewhat inexpensively through reverse engineering and technology diffusion.

True

Fast-Cycle Markets

Competitive advantages aren't sustainable in fast-cycle markets.

Competitors use reverse engineering to quickly imitate or improve on the firm's products.

Non-proprietary technology is diffused rapidly.

Fast-cycle markets are more volatile than slow-cycle and standard-cycle markets. Prices fall quickly in these markets, so companies need to profit quickly from their product innovations

1. Disrupt the status quo

2. Create a temporary advantage

3. Seize the initiative

4.Sustain the momentum

Developing Temporary Advantages to Create Sustained Advantage

Disrupt the status quo

A firm should identify new opportunities to meet customer needs, thereby shifting or changing the basis of competition (steps on managing competitive advantages in fast-cycle markets)

temporary advantage

The _____ should be based on improved knowledge of customers' needs, innovative application of technology, and an attempt to define the future basis of customer satisfaction. (steps on managing competitive advantages in fast-cycle markets)

Seize the initiative

Move aggressively and rapidly, forcing competitors to play catch up; take a proactive approach while leaving competitors to be reactive. (steps on managing competitive advantages in fast-cycle markets)