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Understanding Competition
Topics
Types of CompetitionClassifying CompetitorsIntensity of CompetitionCompetitive IntelligenceSeeking Competititve Advantage
Natural and Strategic Competition
Natural CompetitionStrategic Competition
Natural Competition: Survival of the Fittest
Two firms doing business the same way in the same market cannot coexist forever
Strategic Competition: Deployment of Resources
InformationFramework of interactive systemPostponement of current consumption
Strategic Competition: Deployment of Resources
Investment in irreversible outcomesPrediction of output consequences
Sources of Competition
Customer needIndustry competitionProduct-line competitionOrganizational competition
Factors Contributing to Competitive Rivalry
Opportunity potentialEase of entryNature of product
Factors Contributing to Competitive Rivalry
Exit barriersHomogeneity of marketIndustry structure
Factors Contributing to Competitive Rivalry
Industry structureCommitment to industryTechnological innovations
Factors Contributing to Competitive Rivalry
Scale economiesEconomic climateDiversity of firms
Competitive Intelligence
Strategies, objectives, goalsImportance of specific marketsLevel of commitment
Competitive Intelligence
StrengthsLimitationsWeaknesses
Competitive Intelligence
Future changes in strategyEffects on industry, market, our strategies
Sources of Competitive Information
PublicTradeGovernmentInvestors
Industry Dynamics: Industry Profit Economics
VolumeMaterialsLaborCapital
Market Penetration
Dealer Strength
Seeking Competitive Advantage
Capabilities defend against competitive forces
Strategic moves improve firm’s relative position
Seeking Competitive Advantage
Anticipate and respond to shifts in factorsChoose strategy appropriate to new
competitive balance
Achieving Competitive Distinctiveness
Market focusProduct differentiationAlternative distribution channelSelective pricing
Intensity of Competition
OpportunityEase of entryPrice: similar productsNon-price: factors other than price
Intensity of Competition
Homogeneity of the market: greater intensity
More firms: greater intensityCommitment: greater intensityInnovation: greater intensityEconomies of scale: greater intensity
Competitive Advantage
Outperform competitorsGrow despite competitors
Competitive Advantage
Develop own distinctive competencies that hold potential for competitive advantages
Competitive Advantage: Two Analytical Tools
Industry analysis: market attractiveness based on economic structure
Competitive Advantage: Two Analytical Tools
Comparative analysis: likely future performance of an individual firm in a
particular market given the structure of the industry
Porter’s Model of Industry Structure Analysis
Potential Entrants
The Industry
Degree of Rivalry
Suppliers Buyers
Substitutes
Threat of new entrants
Threat of substitutes
Bargaining Power
Bargaining Power
Porter’s Model of Industry Structure Analysis
Determines strength of the competitive forces of an industry
Determines the profitability of the industry
Porter’s Model of Industry Structure Analysis
Identifies the structure common to the whole industry
Porter’s Model: Degree of Rivalry
Function of:Number of competitors and industry growth
(most influential)Asset intensity: high fixed cost forces firm to
cut price to operate at capacity
Porter’s Model: Degree of Rivalry
Function of:Product differentiation lessens competitionExit barriers (difficult to leave the industry)
intensifies competition
Porter’s Model
The higher the threat of potential entrants the greater the competition
The greater the threat of substitutes the greater the competition
Porter’s Model
The greater the power of suppliers to increase prices reduces profitability
The greater the power of buyers to force low prices reduces profitability