1 chapter 5: competitive rivalry and competitive dynamics overview: competitors, competitive...
TRANSCRIPT
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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
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From Competitors to Competitive Dynamics (Figure 5.1)
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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
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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
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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
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A Model of Competitive Rivalry (Figure 5.2)
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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
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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
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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
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A Framework of Competitor Analysis
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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
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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
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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
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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
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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
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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
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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
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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
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Gradual Erosion of a Sustained Competitive Advantage
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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
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Developing Temporary Advantages to Create Sustained Advantage
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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