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Competitive Rivalry and
Competitive Dynamics
Ijaz Ahmed
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Definitions
Competitors
– Firms operating in the same market, offering similar products and
targeting similar customers.
• Southwest Airlines, Delta, United, Continental, and et!lue
• "epsiCo and Coca#Cola Compan$
Competiti%e &i%alr$
– 'he ongoing set of competiti%e actions and responses occurring
(etween competitors.
– 'he central, empirical fact in strateg$ is that some firmsoutperform others,
– Competiti%e ri%alr$ influences an indi%idual firm)s a(ilit$ to gain
and sustain competiti%e ad%antages.
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Definitions
Competiti%e !eha%ior
– 'he set of competiti%e actions and competiti%e
responses the firm takes to (uild or defend its
competiti%e ad%antages and to impro%e its market position.
*ultimarket Competition
– Firms competing against each other in se%eral product
or geographic markets.Competiti%e D$namics
– 'he total set of actions and responses taken ($ all firms
competing within a market.
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From Competitors to Competitive
Dynamics
Competitors • To gain an advantageous
market position
• Competitive Behavior•Competitive actions•Competitive responses
Competitive Dynamics
Competitive actions and responses taken by all
firms competing in a market
Engage
in
Why?
How?
What esults?
What esults?
Competitive
ivalry
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Competitive Rivalry’s Effect on
StrategySuccess of a strateg$ is determined ($+
– 'he firm)s initial competiti%e actions.
–
ow well it anticipates competitors) responses to them. – ow well the firm responds to its competitors) initial
actions.
Competiti%e ri%alr$+ – Affects all t$pes of strategies.
– as the strongest influence on the firm)s (usiness#le%el
strateg$ or strategies.
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A Model of Competitive Rivalry
Competitors feel each other)s actions and
responses.• intensified ri%alr$ within an industr$ results in decreased
a%erage profita(ilit$ for the competing firms
*arketplace success is a function of (oth
indi%idual strategies and the conse-uences of their
use.
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A Model of Competitive Rivalry
Competitive !nalysis• "arket commonality• esource similarity
Drivers of Competitive
Behavior• !wareness• "otivation• !bility
#nterfirm ivalry• $ikelihood of !ttack
• %irst&mover incentives• 'rgani(ational si(e
• )uality• $ikelihood of esponse
• Type of competitive action• eputation• "arket dependence
'utcomes•
"arket position• %inancial
performance
%eedback
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Competitor Analysis
Competitor anal$sis is used to help a firm understand its
competitors.
'he firm studies competitors) future o(jecti%es, current
strategies, assumptions, and capa(ilities.
ith the anal$sis, a firm is (etter a(le to predictcompetitors) (eha%iors when forming its competiti%e
actions and responses.
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*arket commonalit$ – /ach industr$ has %arious markets
– financial ser%ices industr$
• *arkets for insurance, (rokerage ser%ices, (anks
•*arket segments 0commercial1 consumer2, product segment 0health 1life2, geographic market 0/ast or est2
– transportation industr$
• the commercial air tra%el market differs from the ground
transportation market
&esource similarit$
determine the extent to which the firms are
competitors.
3 4556 "rentice all 78#9
Competitor Analysis
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Maret Commonality
*arket commonalit$ is concerned with+ – *arket segment, product segment, geographic segment
– 'he num(er of markets with which a firm and a competitor are
jointl$ in%ol%ed.
– 'he degree of importance of the indi%idual markets to each
competitor.
Firms competing against one another in se%eral or man$
markets engage in multimarket competition.
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A firm with greater multimarket contact is less likel$ to
initiate an attack, (ut more likel$ to respond more
aggressi%el$ when attacked.
*ultipoint competition tends to reduce competiti%e interactions, (ut increases the likelihood of response where interaction occurs
For e:ample, airlines price flights similarl$ (ut respond -uickl$
when competitors introduce promotional prices
Case of
telecom sector of "akistan
F*C;s, "aints, <awns
Maret Commonality
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Reso!rce Similarity
&esource Similarit$ – ow compara(le the firm)s tangi(le and intangi(le
resources are to a competitor)s in terms of (oth t$pes
and amounts.Firms with similar t$pes and amounts of resourcesare likel$ to+ – a%e similar strengths and weaknesses.
– Use similar strategies.
Assessing resource similarit$ can (e difficult ifcritical resources are intangi(le rather thantangi(le.
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Firms are less inclined to attack a
firm that is likel$ to retaliate
Firms with dissimilar resources
are more likel$ to attack
Firms with similar resources are
more likel$ to (e aware of each
other)s competiti%e mo%es
Reso!rce Similarity
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Drivers of Competitive Behavior
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A Model of Competitive Rivalry
Competitive !nalysis• "arket commonality• esource similarity
Drivers of Competitive
Behavior• !wareness• "otivation• !bility
#nterfirm ivalry• $ikelihood of !ttack
• %irst&mover incentives• 'rgani(ational si(e
• )uality• $ikelihood of esponse
• Type of competitive action• eputation• "arket dependence
'utcomes•
"arket position• %inancial
performance
%eedback
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Drivers of Competitive "ehavior
Awareness is – the e:tent to which competitors
recognize the degree of their
mutual interdependence thatresults from+
• *arket commonalit$
• &esource similarit$
– =omatsu, Caterpillar
– all#*art1 Carrefour
Awareness affects the e:tent to which the
firm understands the conse-uences of its
competiti%e actions and responses.
lack of awareness > negati%e effect
Awareness
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Drivers of Competitive "ehavior
#cont’d$
*oti%ation concerns
– the firm)s incenti%e to takeaction
– or to respond to a competitor)s
attack
– and relates to percei%ed gains
and losses – Firm ma$ (e aware (ut not
moti%ated to engage in ri%alr$
Awareness
Motivation
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Drivers of Competitive "ehavior
#cont’d$
A(ilit$ relates to – each firm)s resources
– the fle:i(ilit$ these resources
pro%ide
ithout a%aila(le resources
the firm lacks the a(ilit$ to
– attack a competitor – respond to the competitor)s
actions
Awareness
Motivation
Ability
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Drivers of Competitive "ehavior
#cont’d$
A firm is more likely to attack
the ri%al with whom it has low
market commonalit$ than the one
with whom it competes inmultiple markets.
;i%en the strong competition
under market commonalit$, it is
likel$ that the attacked firm will
respond to its competitor)s action
in an effort to protect its position
in one or more markets.
Awareness
Motivation
MarketCommonali
ty
Ability
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Drivers of Competitive "ehavior
#cont’d$
'he greater the resource im(alance
(etween the acting firm and
competitors or potential responders,the greater will (e the dela$ in
response ($ the firm with a resource
disad%antage.
hen facing competitors with greater
resources or more attracti%e market positions, firms should e%entuall$
respond, no matter how challenging
the response.
Awareness
Motivation
ResourceDissimilarit
y
Ability
MarketCommonali
ty
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Inter-firm Rivalry
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%nter&firm Rivalry
Competiti%e Action
– A strategic or tactical action the firm takes to (uild or
defend its competiti%e ad%antages or impro%e its
market position.
Competiti%e &esponse
– A strategic or tactical action the firm takes to counter
the effects of a competitor)s competiti%e action.
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Strategic and 'actical Actions
Strategic Action 0or &esponse2
– A market#(ased mo%e that in%ol%es a significant
commitment of organizational resources and is difficult
to implement and re%erse.
'actical Action 0or &esponse2
– A market#(ased mo%e that is taken to fine#tune a
strateg$+
• Usuall$ in%ol%es fewer resources.
• Is relati%el$ eas$ to implement and re%erse.
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Factors Affecting (ielihood of
Attac
First mo%ers allocate funds for+
– "roduct inno%ation and de%elopment
– Aggressi%e ad%ertising
– Ad%anced research and de%elopment
First mo%ers can gain+
– 'he loyalty of customers who ma$
(ecome committed to the firm)s goods
or ser%ices.
– "arket share that can (e difficult forcompetitors to take during future
competiti%e ri%alr$.
First-MoverIncentives
First Mover
A firm that taes an initial
competitive action in order
to )!ild or defend its
competitive advantages or
to improve its maret
position.
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Factors Affecting (ielihood of
Attac #cont’d$
Second mo%er responds to the first
mo%er)s competiti%e action, t$picall$
through imitation+
– Studies customers) reactions to product
inno%ations.
– 'ries to find an$ mistakes the first
mo%er made, and a%oid them.
–Can a%oid (oth the mistakes and thehuge spending of the first#mo%ers.
– *a$ de%elop more efficient processes
and technologies.
First Mover
SecondMover
Incentives
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Factors Affecting (ielihood of
Attac #cont’d$
Small firms are more likel$+
– 'o launch competiti%e actions.
– 'o (e -uicker in doing so.
Small firms are percei%ed as+
– ?im(le and fle:i(le competitors
– &el$ing on speed and surprise to
defend competiti%e ad%antages or
de%elop new ones while engaged incompetiti%e ri%alr$.
– a%ing the fle:i(ilit$ needed to launch
a greater %ariet$ of competiti%e
actions.
First Mover
SecondMover
Organiational Sie-Small
Late Mover
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Factors Affecting (ielihood of
Attac #cont’d$
<arge firms are likel$ to initiate more
competiti%e actions as well as strategic
actions during a gi%en time period
<arge organizations commonl$ ha%ethe slack resources re-uired to launch
a larger num(er of total competiti%e
actions
'hin and act )ig and we’ll get
smaller. 'hin and act small and we’ll
get )igger .
er( =elleher Former C/@,
Southwest Airlines
First Mover
Second
Mover
Organiational Sie-Large
Late Mover
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Factors Affecting (ielihood of
Attac #cont’d$
ualit$ e:ists when the firm)s goods or
ser%ices meet or e:ceed customers)
e:pectations # in entire %alue chain
Customer interest in product -ualit$dimensions include+
First Mover
Second
Mover
!uality"#roduct$
Late Mover
Organiational Sie
"erformance
Features
Fle:i(ilit$
Dura(ilit$
Conformance
Ser%icea(ilit$
Aesthetics
"ercei%ed
-ualit$
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Quality Dimensions of Goods and Services
*roduct )uality Dimensions
7. Performance B@perating characteristics
4. Features BImportant special characteristics
. Duraility BAmount of use (efore performance deteriorates
. Conformance B*atch with pre#esta(lished standards
6. Serviceaility B/ase and speed of repair
8. !esthetics Bow a product looks and feels
*. Perceived "uality BSu(jecti%e assessment of characteristics 0product
image2
Competitor will fix iss!es in +!ality for reven!es, will engage in rivalry
after solving +!ality iss!es
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Factors Affecting (ielihood of
Attac #cont’d$
Ser%ice -ualit$ dimensionsinclude+
– 'imeliness
– Courtes$
–
Consistenc$ – Con%enience
– Completeness
– Accurac$
First Mover
SecondMover
!uality"Service$
Late Mover
Organiational Sie
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+ervice )uality Dimensions
7. #imeliness B"erformed in the promised period of time
4. Courtesy B"erformed cheerfull$
. Consistency B;i%ing all customers similar e:periences each time
. Convenience BAccessi(ilit$ to customers
6. Completeness BFull$ ser%iced, as re-uired
8. !ccuracy B"erformed correctl$ each time
Quality Dimensions of Goods and Services
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Factors Affecting (ielihood of
Response
Firms stud$ three other factors to predict how a
competitor is likel$ to respond to competiti%e
actions+
– '$pe of competiti%e action
– &eputation
– *arket dependence
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Factors Affecting Strategic
Response
Strategic actions recei%e strategic
responses
– Strategic actions elicit fewer total
competiti%e responses. – 'he time needed to implement and
assess a strategic action dela$s
competitor)s responses.
'actical responses are taken to
counter the effects of tactical
actions
– A competitor likel$ will respond
-uickl$ to a tactical actions
%y&e o'Com&etitive
Action
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Factors Affecting Strategic
Response #cont’d$
An actor is the firm taking an
action or response
&eputation is the positi%e ornegati%e attri(ute ascri(ed ($ one
ri%al to another (ased on past
competiti%e (eha%ior.
'he firm studies responses that acompetitor has taken pre%iousl$
when attacked to predict likel$
responses.
%y&e o'Com&etitive
Action
Actor(sRe&utation
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!ctor,s eputation
*arket leaders are more likel$ to (e copied *arket leaders are more likel$ to (e copied
E&isk taking firms are less likel$ to (e copiedE&isk taking firms are less likel$ to (e copied
E"rice "redators are less likel$ to (e copiedE"rice "redators are less likel$ to (e copied
%)e *rm wit) a re&utation as a &rice &redator "an actor t)at're+uently reduces &rices to gain or maintain market s)are$
generates 'ew res&onses to its &ricing tactical actions because&rice &redators, w)ic) ty&ically increase &rices once t)eir market
s)are obective is reac)ed
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Factors Affecting Strategic
Response #cont’d$
*arket dependence is the e:tent to
which a firm)s re%enues or profits
are deri%ed from a particularmarket.
In general, firms can predict that
competitors with high market
dependence are likel$ to respondstrongl$ to attacks threatening their
market position.
%y&e o'Com&etitive
Action
Actor(sRe&utation
De&endenceon t)emarket
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"arket Dependence
Competitor esources
Smaller firms are more likel$ to respond to tactical actionsSmaller firms are more likel$ to respond to tactical actions
<imited resources ma$ lead to alternati%es such as StrategicAlliances
<imited resources ma$ lead to alternati%es such as Strategic
Alliances
-auging the $ikelihood of esponse
Firms that are more dependent on a single industr$ are more
likel$ to respond than are di%ersified firms
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Competitive Dynamics vers!s
Rivalry
Competiti%e D$namics
– @ngoing actions and responses taking place (etween all
firms competing within a market for ad%antageous
positions.
Competiti%e &i%alr$
– @ngoing actions and responses taking place (etween an
individual firm and its competitors for ad%antageous
market position.
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Competitive Dynamics
Competiti%e ad%antages are shielded
from imitation for long periods of
time and imitation is costl$.
Competiti%e ad%antages are
sustaina(le in slow#c$cle markets.
All firms concentrate on competiti%eactions and responses to protect,
maintain and e:tend proprietar$
competiti%e ad%antage.
Slow-CycleMarkets
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Gradual $rosion of a Sustained Competitive !dvanta%e
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Slow Cycle Maret
Slow c$cle markets are fre-uentl$ shielded ($
monopol$ power or %er$ strong (rand lo$alties
'his market outcome and lack of inter#firm ri%alr$
ma$ lead to sustained competiti%e ad%antage
*icke$ mouse, *innie mouse, ;oof$
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Competitive Dynamics #cont’d$
'he firm)s competiti%e ad%antages
aren)t shielded from imitation.
Imitation happens -uickl$ and
somewhat e:pensi%el$
Competiti%e ad%antages aren)t
sustaina(le.
– Competitors use re%erse engineering to
-uickl$ imitate or impro%e on the firm)s
products
?on#proprietar$ technolog$ is
diffused rapidl$
Slow-CycleMarkets
Fast-CycleMarkets
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Fast Cycle Marets
Fast c$cle markets are intensel$ d$namic and a first mo%er
ad%antage is often unsustaina(le
Firms ma$ canni(alize older generation products whileintroducing new inno%ati%e premium products
Sustaina(le competiti%e ad%antage is unlikel$
"rices fall rapidl$
<o$alt$ not de%eloped
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Developin% #emporary !dvanta%es to Create Sustained
!dvanta%e
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Competitive Dynamics #cont’d$
*oderate cost of imitation ma$
shield competiti%e ad%antages.
Competiti%e ad%antages are partiall$
sustaina(le if their -ualit$ is
continuousl$ upgraded.
Firms
– Seek large market shares
– ;ain customer lo$alt$ through (rand
names
– Carefull$ control operations
Slow-CycleMarkets
Fast-CycleMarkets
Standard-CycleMarkets
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Standard Cycle Marets
Standard c$cle markets often lead to highl$
competiti%e pressures despite world class products
Firms with multimarket competition ma$ dampen
ri%alr$ somewhat
Sustained competiti%e ad%antage is a possi(leoutcome in this instance
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