HI6006

Competitive Strategy

Lecture 5: Competitive Dynamics

FIGURE 1.1

THE
STRATEGIC
MANAGEME
NT
PROCESS
KNOWLEDGE OBJECTIVES

Define competitors, competitive rivalry,

competitive behaviour and competitive
dynamics.

Describe market commonality and

resource similarity as the building blocks
of a competitor analysis.

Explain awareness, motivation and ability as

drivers of competitive behaviours.
KNOWLEDGE OBJECTIVES

Discuss factors affecting the likelihood a

competitor will take competitive actions.

Describe factors affecting the likelihood a

competitor will respond to actions taken
against it.

Explain the competitive dynamics in each of

slow-cycle, fast-cycle and standard-cycle
markets.
 IMPORTANT DEFINITIONS
Competitors
 Firms operating in the same market, offering
similar products and targeting similar customers

Examples include:
 Jetstar, Virgin Australia, Jetstar
 PepsiCo and Coca-Cola Company
 Aldi, Coles & Woolworths
 IMPORTANT DEFINITIONS
 A competitive rivalry is the ongoing set of
competitive actions and competitive responses
that occur among firms as they manoeuvre for
an advantageous market position.

 Competitive behaviour is the set of

competitive actions and responses a firm takes
to build or defend its competitive advantages
and to improve its market position.
 IMPORTANT DEFINITIONS
• In multimarket competition, firms compete
against each other in several product or
geographic markets.

• Competitive dynamics refers to all

competitive behaviour – that is, the total set of
actions and responses taken by all firms
competing within a market.
Competitive Dynamics
 COMPETITIVE DYNAMICS VERSUS RIVALRY

• Ongoing actions and

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

• Ongoing actions and

COMPETITIV responses taking place
between an individual firm
E RIVALRY and its competitors for
advantageous market position
A model of Competitive Rivalry
 COMPETITOR ANALYSIS

• Competitor analysis is used to help a firm

understand and predict its competitors’
probable future behaviours.
• A firm studies competitors’:
• Current strategies
• Probable future objectives
• What assumptions are we/they making
• What capabilities do we/they have that give
us/them a relative competitive advantage
 MARKET COMMONALITY

Each industry is composed of various markets

• Market commonality is concerned with:
– the number of markets with which a firm and a
competitor are jointly involved
– the degree of importance of the individual markets
to each competitor.
• Firms competing against one another in several or
many markets engage in multimarket competition.

Activity: Consider this statement: ‘A firm with greater

multimarket contact is less likely to initiate an attack, but
more likely to respond aggressively when attacked’.
 RESOURCE SIMILARITY

• Resource similarity refers to how comparable

a firm’s tangible and intangible resources are to
a competitor
• Firms with similar types and amounts of
resources are likely to have similar strengths
and weaknesses
Assessing resource similarity can be difficult if
critical resources are intangible rather than
tangible.
Activity: Consider the resource similarity of
any two direct competitors. How easy is it
to compare tangible resources, as opposed
to intangible?
 Drivers of COMPETITIVE ACTION & RESPONSE

The greater the resource imbalance

Awareness between the acting firm and
competitors or potential responders,
Motivation the greater the delay in response by
the firm with a resource
disadvantage.
Ability
When facing competitors with
greater resources or more attractive
Market market positions, firms must
Commonality eventually respond, no matter how
Resource challenging the response.
Dissimilarity

Activity: Can you think of any examples where firms have been attacked
and their response has been 1. Immediate ; 2. Delayed [hint: TV ads]
 COMPETITIVE RIVALRY
 The ongoing competitive action/response
sequence between a firm and a competitor affects
the performance of both firms.
 Understanding a competitor’s awareness,
motivation and ability helps a firm predict the
likelihood of an attack and response to actions
initiated by the firm or other competitors.
 The predictions drawn from studying competitors
in terms of awareness, motivation and ability are
grounded in market commonality and resource
similarity.
 STRATEGIC vs TACTICAL ACTIONS

• Strategic action (or response) is a market-

based move that:
– involves a significant commitment of
organisational resources
– is difficult to implement and reverse.

• Tactical action (or response) is a market-

based move that:
– is taken to fine tune a strategy
– usually involves fewer resources
– is relatively easy to implement and
reverse.
 LIKELIHOOD OF ATTACK

In addition to market commonality, resource

similarity, awareness, motivation and ability
other factors also affect the likelihood that a
competitor will use strategic and tactical actions
to attack its competitors.

 These factors include:

 First-mover advantage
 Organisational size and market coverage
 Financial muscle
 Brand Equity
 Tutorial Activity 1

Consider the three main players in the Surfing

Industry, i.e. Quicksilver, Billabong, Rip Curl.

On what basis do they compete?

Has any ever ‘attacked’ another?
How did the other(s) respond?

(Choose another industry and do the same)

What are the differences and similarities?
 COMPETITIVE DYNAMICS
• Competitive behaviours differ across market
types.
• Competitive dynamics differ in slow-cycle, fast-
cycle and standard-cycle markets.
• The sustainability of a firm’s competitive
advantages differs across the three market types.
• The degree of sustainability differs by market type
and is affected by how quickly competitive
advantages can be imitated and how costly it is to
do so.
Sustaining Competitive Advantage
FIGURE 5.5

DEVELOPING
TEMPORARY
ADVANTAGE
S TO
CREATE
SUSTAINED
ADVANTAGE
 COMPETITIVE DYNAMICS
Imitation Competitive
advantage
Slow and costly Sustained competitive
advantage most achievable in
Proprietary rights
Slow-cycle this market
Costly-to-imitate
markets resource/capability usually
results from unique historical
conditions, causal ambiguity
and/or social complexity
Fast-cycle Rapid and inexpensive Not sustainable
markets
Reverse engineering
Standard- Faster and less costly than in Partially sustainable
cycle slow-cycle markets; slower and
more expensive than in fast-cycle
markets markets
Ansoff’s Model
 Tutorial Activity 2

 Read the Tesco mini-case (page 133) and

locate as many of Tesco’s strategies as you
can withing the Ansoff Matrix.

 Identify at least 2 companies that are

currently visibly adopting strategies you can
locate in one of the 4 segments of the Ansoff
matrix.
Ghemawat’s AAA Strategies
 AAA 1. Adapt

Adapt the product to suit local markets,

e.g. Coca Cola, KFC, Pizza Hut

Examples of How:
- Variation of features (quality, taste)
- Design aesthetics (shape, size, colour)
- Innovation (new products that suit the
local market)
Activity: Can you think of any other
ways that firms compete by adapting?
 AAA 1. Aggregate

Adapt the product to suit local markets,

e.g. Coca Cola, KFC, Pizza Hut

Examples of How:
- Variation of features (quality, taste)
- Design aesthetics (shape, size, colour)
- Innovation (includes new products that
suit the local market)
Activity: Can you think of any other
ways that firms compete by adapting?
[IKEA flat-packs]
 AAA 2. Aggregate

Geographic - regional supply chains, centralised or

decentralised production, global or regional branding
Cultural – concentrate on markets that are culturally suited
to your products, e.g. book publishers concentrate on just a
few of the hundreds of languages in the world

Administrative / regulatory – concentrate on markets within

a common regulatory system, e.g. education regulators
(TEQSA)/AACSB-AMBA-Equis, pharmaceuticals (FDA)

Economic – focus on either developed or developing

markets or at least apply some distinguishing principles
(could also be geographic)
 AAA 2. Arbitrage

Exploit – where prices in one region are lower than in

another, e.g. labour costs in Mexico vs USA

Technology-Skill-Knowledge Leverage – where expertise is

stronger in a particular region, e.g. wine-making or
perfumery in France, flower production in Holland,
electronics in Japan/Korea/Vietnam, textiles in Bangladesh,
India, Pakistan

Taxation savings by locating the holding company in a

certain country (tax authority)

[Did you know Vietnam’s biggest export is now Samsung (a Korean

company) mobile phones??]
 Tutorial Activity 3

 Consider why Indian car manufacturer Tata

would seek a joint venture with Italy’s Fiat to
produce small pick-up trucks in Argentina
 Introduction to Case Analysis

 Read the Case – looking to identify (highlight)

key strategic issues
 Decide which Strategy Model or theoretical
concepts are relevant to this case
 Use the model as your ‘template’ to summarise
the key issues identified in the case
 Form a picture of how this company (case)
applies the strategy model or theoretical
concepts
 Evaluate how well the company (case) has
applied Strategy Theory
 Tutorial Activity

Work on your Individual Assignments, due this Friday

Lecturer can be consulted for individual advice

 Case Study

No major Case Analysis this week