Strategic Management

What is Competitive Dynamics?

COMPETITORS: firms operating in the same market, offering similar products, and targeting
similar customers

 COMPETITIVE RIVALRY: the ongoing set of competitive actions and competitive

responses that occur among all firms as they maneuver for an advantageous market position
 COMPETITIVE BEHAVIOR: the set of competitive actions and responses the firm takes
to build or defend its competitive advantages and to improve its market position
 COMPETITIVE DYNAMICS: all competitive behavior, that is, the total set of actions and
responses taken by all firms competing within a market

COMPETITIVE DYNAMICS
Ongoing actions and responses taking place among all firms competing within a market for
advantageous positions

COMPETITIVE RIVALRY
Ongoing actions and responses taking place between an individual firm and its competitors for
advantageous market position
Model of competitive Rivalry
 5 Forces Analysis

Five Forces is a framework developed by Harvard professor Michael Porter in 1979. It

has become one of the most useful and popular business strategy tools because it helps
companies assess industry attractiveness, how trends will affect industry competition,
which industries a company should compete in and how can position themselves for
success (Porter 1987). An attractive market is one where there is higher overall predicted
profitability.

The Five Forces analysis consists of five substeps:

1. Market competitiveness
2. Bargaining power of buyers
3. Threat of substitution
4. Threat of new entrants
5. Bargaining power of suppliers

1. Market Competitiveness

This refers to how competitive and profitable a market is. The more competitive a market,
the lower the profit opportunity becomes. Consider how competitive the industry is for
the business or project to sell to customers. This includes the number of competitors in
the industry, the presence of substitute products or services, and the power of customers
to influence business.

 Market saturation: Number of competitors.

 Market diversity: Diversity of competition.
 Industry concentration: Concentration ratio of an industry.
 Industry growth: Pace of growth of an industry.
 Quality differences: Key differences between companies.
 Brand loyalty: How loyal customers are.
 Barriers to exit: Companies can only stay within this market.
 Switching costs: The cost to switch if a buyer is dissatisfied.