Miles A. Zachary

MGT 4380

Supporting the Business-Level Strategy: Competitive and

Cooperative MovesChapter 6

Simulation OverviewLecture

Competitive DynamicsCompetitive MovesCooperative Moves

Paper/Presentation OverviewSimulation

Overview

Competitive dynamics is the study of how firm action (moves) affects competitors, competitive advantage, and performance

Includes:First-mover advantageEntrainmentDisruptive innovationBlue ocean strategyFootholdsBricolageSelf-displacement

Competitive Dynamics

First-mover firms enter a market before other firms and tend to reap distinct benefits

First-mover advantage results when a first-moving firm is able to develop a dominant position in a developing market

First-movers may be able to establish early brand recognition and build strong customer loyalty

But, first-mover firms may have trouble establishing a competitive advantage:Lack of institutional environmentHigh marketing/advertising expensesConsumers slow to adopt productEasy imitation

First-Mover Advantage (FMA)

Entrainment strategy suggests that firms should time their internal processes with external (environmental) trends

Alternative theory to FMA; argues that while first-moving may be viable in some situations, it is not always optimal

Firms looking to entrain should be aware of dominant external pacers that are likely to direct consumers to their productsEx.-Holiday movies release near their target

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Original research from Zachary & Payne

Rooted in the concept of Schumpeterian innovation (destructive) “[G]ale of creative destruction” – Joseph Schumpeter

Firms may have an opportunity to disrupt an existing market by creating a new product/technology Competence-destroying innovations-major shift in technology;

destroy existing firm’s product effectiveness Competence-enhancing innovations-increase the efficiency of an

existing product or technologyFirms able to effectively combine FMA and disruptive

innovations are in a unique position to capture competitive advantages (e.g., Apple’s iPad)

This is rare as most innovations are not so quickly adoptedFirms must weigh their effectiveness in the new environment

and whether they can sustain themselves during the slow growth

Disruptive Innovation

A blue ocean strategy attempts to create a new, untapped market rather than competing with rivals in an existing market

Tries to make competition irrelevantFirms create new products to reach

previously ignored sets of consumersEx.-Nintendo developed alternative games that

appeal to traditionally non-gaming consumersEx.-Casella wines (Yellowtail) appealed to

traditionally non-wine drinking crowds, creating a new consumer base

Blue Ocean Strategy

Footholds are small positions firms intentionally create in a market in which it does not already compete

Similar to climbing, firms use strategic footholds to anchor a new position in a market to exploitCan include either geographical positioning or market

positioningFootholds may ward off potential competitors by

establishing an early position or staking geographical claimsEx.-Allsups convenient stores build locations in small

towns to establish geographical advantages and discourage other stores from entering the limited market

Footholds

A bricolage strategy describes using available resources in a unique combination to generate a new product or market

Bricolage can help firms overcome problems associated with limited resources

Successful bricolage can help create strategic resourcesEx.-Oo-La-Latte’s in Lubbock combined the ideas of a

coffee shop with the sex appeal of Hooter’sEx.-Alamo Brewhouses combine traditional movie theaters

with pub grub and atmosphereHowever, if the resources are widely available to

competitors, imitation may limit the competitive advantages of bricolage

Bricolage

Self-displacement involves a leader firm moving aside and allowing a competitor to occupy a market leadership position in order to continue to develop new competitive advantages

Some scholars suggest that this is likely an optimal situation for firms as a result of the added costs associated with increasing the speed of innovation (time compression diseconomies)

Only in situations where the innovation has high competitive value and low market value should a firm self-renew (speed up innovation)

Self-displacement

Firms must often determine adequate responses to competitor actions; very difficult to decide

Likelihood of response is a factor of:AwarenessMotivationCapability

Responding firms must be aware of their competitor’s actions, motivated to respond, and capable of mounting a competitive responseEx.-Schick introduces Quattro brand => Gillette

preempts move and introduces Sensor 3 and Venus Devine

Responding to Competitors

The characteristics of a competitor’s action are important predictors of competitive responseRadicality-extent to which an action departs from

existing normsMagnitude-amount of resources needed to

implement the actionScope-number of competitors affectedDegree of threat-severity of affect

Such characteristics predict:Response likelihood-p(response)Response speed-how fast a firm respondsResponse order-order within industry of response

Action/Response Characteristics

Response could also be artifact of a firm’s competitive repertoire—a firm’s entire set of competitive action carried out in a given yearCR simplicity-an overwhelming preoccupation

with a single type of actionCR non-conformity-tendency for action to depart

from industry normsCR inertia-level of activity a firm exhibits when

altering its competitive stanceThe state of a firm’s competitive repertoire may

affect how capable a firm is of responding to competitor action

Competitive Repertoire

When firms compete in multiple markets, executives must consider the effects on each market when crafting actions and responses

Mutual forbearance occurs when rivals do not act aggressively because each firm recognizes the other could retaliate in multiple markets

Awareness of mutual forbearance can help firms decide if and when to attack another firm; often, it dissuades firms from pursuing actionEx.-United Airlines announces new routes in

notoriously Southwest Airline’s territory => SW publically announces counteraction => nothing happened and both firms benefited

Multipoint Competition

In the event a firm’s action creates a disruptive innovation (competence-destroying), firms choose from three (3) general responsesIgnore the innovation-when firms believe the

interruption is temporaryRespond on a different dimension-firms

may respond to competitor action by acting on another line

Match the competitor move-respond directly by cannibalizing its traditional business; may attract new customer segments

Responding to Disruptive Innovation

When competitors attempt to lure a firm’s customers away with lower prices, firms may be tempted to lower prices to competeGood idea in the short-run; bad in the long-runMay be difficult to increase prices in the future

A fighting brand is a lower-end brand that a firm introduces to protect the firm’s market share without damaging an existing brandEx.-GM’s Geo brand competes with inexpensive

Japanese modelsSome fighting brands are short-lived

Fighting Brands

Firms can sometimes benefit more by cooperating rather than competingJoint venturesStrategic alliancesCo-locationCooptition

Cooperating firms are able to share resources and lean on each others’ strengths

However, some firms lose control over operations, share valuable secrets, and may be exploited by partners

Cooperative Moves

A joint venture is a cooperative arrangement that involves two or more firms each contributing to the new entity

Joint ventures allow firms to capitalize on shared opportunities and threats

Joint Ventures

A strategic alliance involves a cooperative arrangement between two or more organizations that does NOT result in the creation of a new entity

While many industries have strategic alliances, the pharmaceutical industry has many

Strategic Alliances

Co-location refers to a situation in which goods and services offered under different brands are located in close proximity

By giving customers with a variety of choices, co-located firms can attract larger customer segments collectively

Co-location

Co-optition highlights a complex interaction that involves cooperating and competingCooperate early in the value chainCompete later in the value chain

Highlights how firms have different relationships with other firmsCustomerSupplierCompetitor

Co-optition