CHAPTER 5: THE DYNAMICS OF COMPETITIVE RIVALRY
Global competitive dynamics refers to the actions and
COMPETITIVE DYNAMICS
COMPETITORS:
Firms operating in the same market, offering similar
products and targeting similar customer.
EXAMPLES:
 PepsiCo and Coca-Cola company
 Jollibee, Mcdo, KFC, Popeyes
 Louis Vuitton, Hermes, Gucci & Prada
2 TYPES OF COMPETITORS
 Direct Competitors: is any company that offers the
same product as you
 Indirect Competitors: refers to a business that
offers a products or Direct Competitors: Indirect
Competitors: services different from yours but
potentially could satisfy the same need and reach
the same goal.
COMPETITIVE RIVALRY
the ongoing set of competitive actions and competitive
responses occurring between competitors. (e.g
Samsung and Apple Co.)
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
COMPETITORS TO COMPETITIVE DYNAMICS
The Dynamics of Global Competion
responses undertaken by competing firms around the
world.
MULTI-MARKET COMPETITION
 Firms competing against one another in several
product or geographic markets.
 Globalization is the target of the most firms as the
market expansion is in direction of the populated
countries.
 The dynamics of competition will be on the
developed economies of the world as they have the
necessary technology and infrastructure to the
disadvantage of the developing economies.
MODEL OF COMPETITIVE STRATEGY
THE INTENSITY OF MARKET RIVALRY IS AFFECTED BY
THE FOLLOWING
 The total number of competitors
 The market characteristics
 The quality and extent of individual firm ’ s
strategies
THE TOTAL NUMBER OF COMPETITORS
Direct competitor - It is another business that offers the
same product or service and compete for the same
market
THE MARKET CHARACTERISTICS
The market characteristics is concerned with the
number of markets with which the firm and its
competitors are jointly involved and the degree of its
importance to both firms.
Slow Industry growth slow - high level of rivalry
Fast Industry growth - low level of rivalry
THE QUALITY AND EXTENT OF INDIVIDUAL FIRM’S
STRATEGIES
Firms with similar resources and capabilities are more
likely to have the same strength and weaknesses and
therefore use similar strategies
STRATEGIC RESPONSE TO COMPETITOR'S ACTION
Competitors would not rest until they will be able to
catch up or overtake the leaders in the industry.
Factors that influence Strategic Response
1. CORPORATE AWARENESS TO COMPETITION
Strategic response of corporate awareness is a
prerequisite to any competitive action or response.
 Degree of their mutual interdependence
 The lack of corporate awareness can lead to
excessive competition that will result in a negative
effect on the competitor’s performance.
Similarity in resources and market niche = Develop
greater corporate awareness = Greater competitive
advantage.
FOR THE FIRM TO IMPROVE THEIR COMPETENCIES
WHILE COMPETING IN MULTIPLE MARKETS.
2. MOTIVATION TO RESPOND TO COMPETITION
Corporate incentive to take action or respond to the
competitor's attack to perceive gains and losses.
 Market commonality affects the corporate
perceptions and its resulting motivation.
 Firms attacking its competitors with low market
commonality than with firms that offer multiple
markets.
 Rival firms will have higher stakes in terms of
investments to gain advantageous position over
firms operating in multiple markets.
3. ABILITY IN TERMS OF RESOURCES AND
TECHNOLOGY
Considering the availability of their resources and
technology at hand to enter the market competition.
 Careful study of possible attacks.
4. DISSIMILARITY OF RESOURCES AND OPERATIONAL
CAPABILITY
Competitive action and response between firms in that
the greater the resource imbalance between the actors
of competition or respondent competitors, the greater
is the delay in response.
 Rival firms could not easily overtake cost strategy
Reason: Carefully studying the effects of low cost
pricing to their profitability index in operation.
 The leading firm may be able to get material
resources from their suppliers at low cost due to
cooperative purchasing strategy.
SYSTEM AND OPERATIONAL CAPABILITY
Logistic mobilization and delivery is another factor that
affects competitive advantage, which could not be seen
by the rival firms.
SYSTEM AND PROCEDURE
Slow Where firms applied in the operation are not easily
available to rival firms and their competencies and
capabilities are entirely not the same.
TACTICAL ACTION TO COMPETITIVE RIVALRY
The firm's market position must be maintained at
profitable level and must depend its competitive
advantage through tactical action towards the attack of
rival.
FACTORS THAT INFLUENCE THE LIKELIHOOD OF
RIVAL'SATTACK
1) Pioneering Incentive Strategy.
A) Pioneer or First Mover Strategy
 Initiate competitive action through additional
investment to create innovative product. Effective
on fast-cycle market such electronic market.
 Advantages:
Consumer's loyalty
Satisfied customer became committed on the product
B) Imitator or Second Mover Strategy.
 Imitates the pioneer. Studies the pioneer's strategy
to avoid research and development cost and to
create superior product.
 Advantages:
Avoid problem and mistake of pioneer.
Development technologies and efficiency that are
superior.
Create product that creates customer value.
2) ORGANIZATIONAL SIZE STRATEGIES
 Big companies used to set on their laurels confident
that the competitors could not easily overtake their
size.
 Smaller organizations that are aggressive enough to
increase their market niche are more likely to
launch competitive actions.
The Competitive Strategies of Smaller Firms Against its
Big Rivals are:
a) Lower investment cost in research and development.
b) Lower fixed and overhead expenses
c) Technology and resource base through imitation.
d) Quicker and flexibility in action and response.
e) Lower product price with new features.
3) PRODUCT QUALITY STRATEGIES
Quality is the production of goods or services with no
defects involving a never-ending cycle of continuous
improvement.
Quality in different perspectives:
1) In strategic objectives, quality refers to how firm
produces products that exceed customer expectations.
2) In corporate perspective, quality is an outcome of
how the firm complete the cycle of the primary and
support activities that develops customer satisfaction
that gives the firm the desired return on investment.
3) In customer perspective, Quality means doing the
right things relative to performance measure that are
important to them.
Customer's Perception of Quality Products:
a.Performance b. Product Features c. Flexibility d.
Conformance e. Durability f. Aesthetics g. Serviceability
Total Quality Management (TQM)
 A managerial strategy of innovations that
emphasizes the organization’s total commitment to
customer satisfaction.
 Process of continuous improvement in production
processes through the use of data-driven strategies
in problem solving.
Firms implementing TQM strategies resulted in
following advantages:
1) Increase in customer satisfaction
2) Cut down cost by 20%
3) Reduce down time cost in product innovation and
processing
4) Increase productivity of work force
5) Greater incentives for work teams
Poor product quality will results
1) Decline in sales volume
2) Credibility in the market could not be easily corrected
3) Loss of customer patronage and loyalty
4) Image building would take time to correct
5) Greater loss in profit margin.
THE DYNAMICS OF RIVAL'S RESPONSES
" For every action, there is an equal and opposite
reaction. " — NEWTON'S THIRD LAW OF MOTION
" Firms always act and react. "
COMPETITIVE RIVALRY:
• Likelihood of Attack •Likelihood of Response
Competitive responses are taken to counter the effects
of a competitor’s competitive action.
In general, a firm is likely to respond to a competitor's
action:
1. The action leads to better use of the competitor's
capabilities:
• to gain or produce stronger competitive advantages or
•an improvement in its market position
2. The action damages the firm's ability to use its
capabilities to create or maintain an advantage, or
3. The firm's market position becomes less defensible
THREE IMPORTANT FACTORS THAT AFFECTS
COMPETITORS RIVALRY
 Market commonality and resource similarity which
could not be seen by the rival firms.
 Awareness, motivation, and ability
 Type of competitive action, reputation, and market
dependence
TYPE OF COMPETITIVE ACTION (STRATEGIC OR
TACTICAL)
· strategic actions result in fewer responses b/c
entails big commitment of resources
· will respond quickly to tactical actions.
· strategic action is met by strategic response; tactical
action is met by tactical response
ACTOR'S REPUTATION
· actor- firm that takes action or response
· firm less likely to respond to actions of competitor
with a reputation for risky, unpredictable behavior
· reputation- a positive or negative attribute ascribed
by one rival to another based on past behavior.
Market Dependence:
· Market dependence: the extent to which a firm's
revenue or profits are derived from a particular
market.
· Competitors with high market dependence are
likely to respond strongly to attacks that threaten
their market position.