052 strategy competitors competitive rivalry competitive behavior and competitive dynamics

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Strategic Management

Competitiveness and Globalization: Competitiveness and Globalization: Concepts and Cases

Concepts and Cases Seventh edition

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CHAPTER 5

Strategy

competitors, competitive

rivalry, competitive behavior, and

competitive dynamics

Management of Strategy

Concepts and Cases

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K

KNOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES

1.

1. Define competitors, competitive rivalry, competitive behavior, aDefine competitors, competitive rivalry, competitive behavior, andnd competitive dynamics.

competitive dynamics.

2.

2. Describe market commonality and resource similarity as theDescribe market commonality and resource similarity as the building blocks of a competitor analysis.

building blocks of a competitor analysis.

3.

3. Explain awareness, motivation, and ability as drivers of competiExplain awareness, motivation, and ability as drivers of competitivetive behavior.

behavior.

4.

4. Discuss factors affecting the likelihood a competitor will takeDiscuss factors affecting the likelihood a competitor will take competitive actions.

competitive actions.

5.

5. Discuss factors affecting the likelihood a competitor will respoDiscuss factors affecting the likelihood a competitor will respond tond to actions taken against it.

actions taken against it.

6.

6. Explain competitive dynamics in slowExplain competitive dynamics in slow--cycle, fastcycle, fast--cycle, andcycle, and standard

standard--cycle markets.cycle markets.

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Definitions

•

• Competitors

Competitors



Firms operating in the same market, offering similarFirms operating in the same market, offering similar products and targeting similar customers.

products and targeting similar customers.

•

• Competitive Rivalry

Competitive Rivalry



The ongoing set of competitive actions and responsesThe ongoing set of competitive actions and responses occurring between competitors.

occurring between competitors.



Competitive rivalry influences an individual firmCompetitive rivalry influences an individual firm’’ss ability to gain and sustain competitive advantages.

(4)

Definitions

•

• Competitive Behavior

Competitive Behavior



The set of competitive actions and competitive_{The set of competitive actions and competitive}

responses the firm takes to build or defend its

competitive advantages and to improve its market

position.

•

• Multimarket

Multimarket

Competition



Firms competing against each other in severalFirms competing against each other in several product or geographic markets.

product or geographic markets.

•

• Competitive Dynamics

Competitive Dynamics



The total set of actions and responses taken by allThe total set of actions and responses taken by all firms competing within a market.

(5)

From Competitors to Competitive Dynamics

Competitors

Competitors •• _{To gain an advantageous}_{To gain an advantageous}

market position

•

• Competitive BehaviorCompetitive Behavior •

• Competitive actionsCompetitive actions

•

• Competitive responsesCompetitive responses

Competitive Dynamics

Competitive actions and responses taken

Engage in

Why?

How? What Results?

What Results? Competitive

Competitive

Rivalry

(6)

Figure

Figure 5.1_5.1 From Competitors to Competitive DynamicsFrom Competitors to Competitive Dynamics

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Competitive Rivalry

’

s Effect on Strategy

•

• Success of a strategy is determined by:

Success of a strategy is determined by:



The firmThe firm’’s initial competitive actions.s initial competitive actions.



How well it anticipates competitorsHow well it anticipates competitors’’ responses toresponses to them.

them. 

How well the firm anticipates and responds to itsHow well the firm anticipates and responds to its competitors

competitors’’ initial actions.initial actions.

•

• Competitive rivalry:

Competitive rivalry:



Affects all types of strategies._{Affects all types of strategies.} 

Has the strongest influence on the firmHas the strongest influence on the firm’’s businesss business- -level strategy or strategies.

(8)

A Model of Competitive Rivalry

•

• Firms are mutually interdependent

Firms are mutually interdependent



A firmA firm’’s competitive actions have noticeable effectss competitive actions have noticeable effects on its competitors.

on its competitors. 

A firmA firm’’s competitive actions elicit competitives competitive actions elicit competitive responses from its competitors.

responses from its competitors. 

Competitors feel each otherCompetitors feel each other’’s actions and responses.s actions and responses.

•

• Marketplace success is a function of both

Marketplace success is a function of both

individual strategies and the consequences of

their use.

(9)

A Model of Competitive Rivalry

Competitive Analysis

•

• Market commonalityMarket commonality

•

• Resource similarityResource similarity

Drivers of Competitive

Behavior

•

• AwarenessAwareness

•

• MotivationMotivation

•

• AbilityAbility

Interfirm

Interfirm RivalryRivalry

•

• Likelihood of AttackLikelihood of Attack

•

• FirstFirst--mover incentivesmover incentives

•

• Organizational sizeOrganizational size

•

• QualityQuality

•

• Likelihood of ResponseLikelihood of Response

•

• Type of competitive actionType of competitive action

•

• ReputationReputation

Outcomes

•

• Market positionMarket position

•

• FinancialFinancial performance

performance Feedback

(10)

FIGURE

FIGURE 5.2_5.2 A Model of Competitive RivalryA Model of Competitive Rivalry

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Competitor Analysis

•

• Competitor analysis is used to help a firm

Competitor analysis is used to help a firm

understand its competitors.

•

• The firm studies competitors

The firm studies competitors

’

future objectives,

current strategies, assumptions, and capabilities.

•

• With the analysis, a firm is better able to predict

With the analysis, a firm is better able to predict

competitors

’

behaviors when forming its

competitive actions and responses.

(12)

Market Commonality

•

• Market commonality is concerned with:

Market commonality is concerned with:



The number of markets with which a firm and a_{The number of markets with which a firm and a}

competitor are jointly involved.

competitor are jointly involved. 

The degree of importance of the individual markets toThe degree of importance of the individual markets to each competitor.

each competitor.

•

• Firms competing against one another in several

Firms competing against one another in several

or many markets engage in multimarket

competition.



A firm with greater multimarket contact is less likely toA firm with greater multimarket contact is less likely to initiate an attack, but more likely to more respond

initiate an attack, but more likely to more respond

aggressively when attacked.

(13)

Resource Similarity

•

• Resource Similarity

Resource Similarity



How comparable the firmHow comparable the firm’’s tangible and intangibles tangible and intangible resources are to a competitor

resources are to a competitor’’s in terms of both typess in terms of both types and amounts.

and amounts.

•

• Firms with similar types and amounts of

Firms with similar types and amounts of

resources are likely to:



Have similar strengths and weaknesses.Have similar strengths and weaknesses.



Use similar strategies.Use similar strategies.

•

• Assessing resource similarity can be difficult if

Assessing resource similarity can be difficult if

critical resources are intangible rather than

tangible.

(14)

FIGURE

FIGURE 5.3_5.3 A Framework of Competitor AnalysisA Framework of Competitor Analysis

(15)

Drivers of Competitive Behavior

•

• Awareness is

Awareness is



the extent to which_{the extent to which}

competitors recognize the

degree of their mutual

interdependence that

results from:

results from: •

• Market commonalityMarket commonality

•

• Resource similarityResource similarity

Awareness

(16)

Drivers of Competitive Behavior (cont

’

d)

•

• Motivation concernsMotivation concerns



 the firmthe firm’’s incentive to takes incentive to take action

action



 or to respond to aor to respond to a competitor

competitor’’s attacks attack



 and relates to perceivedand relates to perceived gains and losses

gains and losses

Awareness

Motivation

(17)

Drivers of Competitive Behavior (cont

’

d)

•

• Ability relates toAbility relates to



 each firmeach firm’’s resourcess resources



 the flexibility thesethe flexibility these resources provide

resources provide

•

• Without availableWithout available

resources the firm lacks resources the firm lacks

the ability to the ability to



 attack a competitorattack a competitor



 respond to the competitorrespond to the competitor’’ss actions

actions

Awareness

Motivation

Ability

(18)

Drivers of Competitive Behavior (cont

’

d)

•

• A firm is more likely to attackA firm is more likely to attack the rival with whom it has low

the rival with whom it has low

market commonality than the

one with whom it competes in

multiple markets.

•

• Given the strong competitionGiven the strong competition under market commonality, it is

under market commonality, it is

likely that the attacked firm will

respond to its competitor

respond to its competitor’’ss action in an effort to protect its

action in an effort to protect its

position in one or more

(19)

Drivers of Competitive Behavior (cont

’

d)

•

• The greater the resourceThe 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 withWhen facing competitors with greater resources or more

greater resources or more

attractive market positions, firms

should eventually respond, no

matter how challenging the

(20)

Competitive Rivalry

•

• Competitive Action

Competitive Action



A strategic or tactical action the firm takes to build or_{A strategic or tactical action the firm takes to build or}

defend its competitive advantages or improve its

market position.

•

• Competitive Response

Competitive Response



A strategic or tactical action the firm takes to counterA strategic or tactical action the firm takes to counter the effects of a competitor

(21)

Strategic and Tactical Actions

•

• Strategic Action (or Response)

Strategic Action (or Response)



A marketA market--based move that involves a significantbased move that involves a significant commitment of organizational resources and is

commitment of organizational resources and is

difficult to implement and reverse.

•

• Tactical Action (or Response)

Tactical Action (or Response)



A marketA market--based move that is taken to finebased move that is taken to fine--tune atune a strategy:

strategy: •

• Usually involves fewer resources.Usually involves fewer resources.

•

(22)

Factors Affecting Likelihood of Attack

•

• First movers allocate funds for:First movers allocate funds for:



 Product innovation andProduct innovation and development

development 

 Aggressive advertisingAggressive advertising 

 Advanced research andAdvanced research and development

development

•

• First movers can gain:First movers can gain:



 The loyalty of customers who mayThe loyalty of customers who may become committed to the firm

become committed to the firm’’ss goods or services.

goods or services. 

 Market share that can be difficultMarket share that can be difficult for competitors to take during for competitors to take during future competitive rivalry. future competitive rivalry.

First

First--MoverMover Incentives

Incentives

First Mover

A firm that takes an initial competitive action in order to build or

defend its competitive advantages or to

(23)

Factors Affecting Likelihood of Attack (cont

’

d)

•

• Second mover responds to the firstSecond mover responds to the first mover

mover’’s competitive action, typicallys competitive action, typically through imitation:

through imitation:



 Studies customersStudies customers’’ reactions toreactions to product innovations.

product innovations.



 Tries to find any mistakes the firstTries to find any mistakes the first mover made, and avoid them. mover made, and avoid them.



 Can avoid both the mistakes andCan avoid both the mistakes and the huge spending of the first the huge spending of the first- -movers.

movers.



 May develop more efficientMay develop more efficient processes and technologies. processes and technologies.

(24)

Factors Affecting Likelihood of Attack (cont

’

d)

•

• Late mover responds to aLate mover responds to a competitive action only after

competitive action only after

considerable time has elapsed.

•

• Any success achieved will be slowAny success achieved will be slow in coming and much less than that

in coming and much less than that

achieved by first and second

movers.

•

• Late moverLate mover’’s competitive actions competitive action allows it to earn only average

allows it to earn only average

returns and delays its

understanding of how to create

value for customers.

(25)

Factors Affecting Likelihood of Attack (cont

’

d)

•

• Small firms are more likely:Small firms are more likely:



 To launch competitive actions.To launch competitive actions. 

 To be quicker in doing so.To be quicker in doing so.

•

• Small firms are perceived as:Small firms are perceived as:



 Nimble and flexible competitorsNimble and flexible competitors 

 Relying on speed and surprise toRelying on speed and surprise to defend competitive advantages or defend competitive advantages or develop new ones while engaged in develop new ones while engaged in competitive rivalry.

competitive rivalry. 

 Having the flexibility needed toHaving the flexibility needed to launch a greater variety of

(26)

Factors Affecting Likelihood of Attack (cont

’

d)

•

• Large firms are likely to initiateLarge firms are likely to initiate

more competitive actions as well as

strategic actions during a given time

period

•

• Large organizations commonlyLarge organizations commonly have the slack resources required

have the slack resources required

to launch a larger number of total

competitive actions

•

• Think and act big and weThink and act big and we’’ll getll get smaller. Think and act small and

smaller. Think and act small and

we

we’’ll get bigger.ll get bigger.

Herb Kelleher

Former CEO, Southwest Airlines

(27)

Factors Affecting Likelihood of Attack (cont

’

d)

•

• Quality exists when the firmQuality exists when the firm’’ss goods or services meet or

goods or services meet or exceed customers

exceed customers’’ expectations

expectations

•

• Product quality dimensionsProduct quality dimensions include:

 PerformancePerformance



 FeaturesFeatures



 FlexibilityFlexibility



 DurabilityDurability



 ConformanceConformance



 ServiceabilityServiceability



 AestheticsAesthetics



(28)

Table

Table 5.1_5.1 Quality Dimensions of Goods and ServicesQuality Dimensions of Goods and Services

Product Quality Dimensions

1. Performance—Operating characteristics 2. Features—Important special characteristics

3. Flexibility—Meeting operating specifications over some period of time

4. Durability—Amount of use before performance deteriorates 5. Conformance—Match with preestablished standards

6. Serviceability—Ease and speed of repair 7. Aesthetics—How a product looks and feels

8. Perceived quality—Subjective assessment of characteristics (product image)

(29)

Factors Affecting Likelihood of Attack (cont

’

d)

•

• Service quality dimensionsService quality dimensions include:

include:



 TimelinessTimeliness



 CourtesyCourtesy



 ConsistencyConsistency



 ConvenienceConvenience



 CompletenessCompleteness



 AccuracyAccuracy

(30)

Table

Table 5.15.1 _{Quality Dimensions of Goods and Services (cont}_{Quality Dimensions of Goods and Services (cont}’’_d)_d)

SOURCES:Adapted from J.W. Dean, Jr., & J. R. Evans, 1994,Total Quality: Management, Organization and Society,St. Paul, MN:West Publishing Company; H.V. Roberts & B. F. Sergesketter, 1993,Quality Is Personal,New York:The Free Press; D. Garvin, 1988,Managed Quality: The Strategic and Competitive Edge,New York:The Free Press.

Service Quality Dimensions

1. Timeliness—Performed in the promised period of time 2. Courtesy—Performed cheerfully

3. Consistency—Giving all customers similar experiences each time 4. Convenience—Accessibility to customers

(31)

Likelihood of Response

•

• Responses to a competitor

Responses to a competitor

’

s action are taken

when the action:



Leads to better use of the competitorLeads to better use of the competitor’’s capabilities tos capabilities to gain or produce stronger competitive advantages or

gain or produce stronger competitive advantages or

an improvement in its market position.



Damages the firmDamages the firm’’s ability to use its capabilities tos ability to use its capabilities to create or maintain an advantage.

create or maintain an advantage.



Makes the firm_{Makes the firm}’’s market position becomes lesss market position becomes less defensible.

(32)

Factors Affecting Likelihood of Response

•

• Firms study three other factors to predict how a

Firms study three other factors to predict how a

competitor is likely to respond to competitive

actions:



Type of competitive actionType of competitive action



ReputationReputation



(33)

Factors Affecting Strategic Response

•

• Strategic actions receiveStrategic actions receive strategic responses

strategic responses



 Strategic actions elicit fewer totalStrategic actions elicit fewer total competitive responses.

competitive responses.



 The time needed to implement andThe time needed to implement and assess a strategic action delays

assess a strategic action delays

competitor

competitor’’s responses.s responses.

•

• Tactical responses are taken toTactical responses are taken to counter the effects of tactical counter the effects of tactical

actions actions



 A competitor likely will respondA competitor likely will respond quickly to a tactical actions

quickly to a tactical actions

(34)

Factors Affecting Strategic Response (cont

’

d)

•

• An actor is the firm taking anAn actor is the firm taking an action or response

action or response

•

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

•

• The firm studies responses thatThe firm studies responses that a competitor has taken

a competitor has taken

previously when attacked to previously when attacked to predict likely responses.

predict likely responses.

(35)

Factors Affecting Strategic Response (cont

’

d)

•

• Market dependence is theMarket dependence is the extent to which a firm

extent to which a firm’’ss

revenues or profits are derived revenues or profits are derived

from a particular market. from a particular market.

•

• In general, firms can predict thatIn general, firms can predict that competitors with high market

competitors with high market dependence are likely to

dependence are likely to respond strongly to attacks respond strongly to attacks

threatening their market threatening their market

position.

on the market

(36)

Competitive Dynamics versus Rivalry

•

• Competitive Dynamics

Competitive Dynamics



Ongoing actions and responses taking place

between

all firms

competing within a market

for advantageous positions.

•

• Competitive Rivalry

Competitive Rivalry



Ongoing actions and responses taking place

between

an individual firm

and its

competitors

for advantageous market

position.

(37)

Competitive Dynamics versus Rivalry (cont

’

d)

•

• Competitive Rivalry

Competitive Rivalry

(

Individual firms

)



Market commonalityMarket commonality and resource similarity

and resource similarity



Awareness, motivationAwareness, motivation and ability

and ability



First mover incentives,_{First mover incentives,}

size and quality

•

• Competitive Dynamics

Competitive Dynamics

(

All firms

)



Market speed (slowMarket speed (slow- -cycle, fast

cycle, fast--cycle, andcycle, and standard

standard--cyclecycle



Effects of marketEffects of market

speed on actions and

responses of all

competitors in the

market

(38)

Competitive Dynamics

•

• Competitive advantages areCompetitive advantages are shielded from imitation for long shielded from imitation for long periods of time and imitation is periods of time and imitation is costly.

costly.

•

• Competitive advantages areCompetitive advantages are sustainable in slow

sustainable in slow--cycle markets.cycle markets.

•

• All firms concentrate onAll firms concentrate on competitive actions and competitive actions and

responses to protect, maintain responses to protect, maintain and extend proprietary

and extend proprietary competitive advantage. competitive advantage.

Slow

Slow--CycleCycle Markets

(39)

FIGURE

(40)

Competitive Dynamics (cont

’

d)

•

• The firmThe firm’’s competitives competitive advantages aren

advantages aren’’t shielded fromt shielded from imitation.

imitation.

•

• Imitation happens quickly andImitation happens quickly and somewhat expensively

somewhat expensively

•

• Competitive advantages arenCompetitive advantages aren’’tt sustainable.

sustainable.



 Competitors use reverse engineeringCompetitors use reverse engineering to quickly imitate or improve on the

to quickly imitate or improve on the

firm

firm’’s productss products

•

(41)

FIGURE

FIGURE 5.5_5.5 Developing Temporary Advantages to Create SustainedDeveloping Temporary Advantages to Create Sustained Advantage

(42)

Competitive Dynamics (cont

’

d)

•

• Moderate cost of imitation mayModerate cost of imitation may shield competitive advantages. shield competitive advantages.

•

• Competitive advantages areCompetitive advantages are

partially sustainable if their quality partially sustainable if their quality

is continuously upgraded. is continuously upgraded.

•

• FirmsFirms



 Seek large market sharesSeek large market shares



 Gain customer loyalty through brandGain customer loyalty through brand names

names



 Carefully control operationsCarefully control operations

Slow

Standard--CycleCycle Markets