Competitive Dynamics

Results Irom a series oI competitive actions and

competitive responses among Iirms competing within
a particular industry
Competitive Rivalry
Exists when two or more Iirms jockey with one another
in the pursuit oI better market position
Competitors
Firms operating in the same market, oIIering
similar products and targeting similar customers
Competitive Dynamics vs. Rivalry
Competitive Rivalry
(individual firms)
Market commonality and
resource similarity
Awareness, motivation,
and ability
First mover incentives
and firm size
Competitive
Dynamics (all firms)
Market speed (slow-
cycle, fast-cycle, and
standard-cycle)
Effects of market
speed on actions and
responses of all
competitors in the
market
11ect o1 Competitive Rivalry on a
Firm`s Strategies
Success o1 a strategy is determined by:
the Iirm`s initial competitive actions
how well it anticipates competitors` responses to them
how well the Iirm anticipates and responds to its
competitors` initial actions
Competitive rivalry
aIIects all types oI strategies
most dominant inIluence is on the Iirm`s business-level
strategy or strategies.
Model oI Competitive Rivalry
Firms are mutually interdependent
A firm's competitive actions have noticeable
effects on its competitors.
A firm's competitive actions elicit competitive
responses from its competitors.
Competitors feel each other's actions and
responses.
Marketplace success is a function of both
individual strategies and the
consequences of their use.
Model o1 Competitive Rivalry
Competitive nalysis
Market commonality
Resource similarity
(the competitive analysis)
Drivers oI Competitive
Behavior
wareness
Motivation
bility
Interim Rivalry
Likelihood oI ttack
First mover incentives
Organizational size
Quality
Likelihood oI Response
Type oI competitive action
Reputation
Market dependence
Outcomes
Market position
Financial perIormance
Ieedback
Competitor
nalysis
Resource
Similarity
Market
Commonality
Model o1 Competitive Rivalry
Do 1irms compete with each
other in multiple markets?
Do competitors possess similar
types or amounts o1 resources?
Competitive nalysis: Market
Commonality
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.
A firm with greater multimarket contact is less
likely to initiate an attack, but more likely to
more respond aggressively when attacked.
Competitive nalysis: Resource
Similarity
Resource Similarity
How comparable the firm's tangible and intangible
resources are to a competitor's in terms of both
types and amounts.
Firms with similar types and amounts of
resources are likely to:
Have similar strengths and weaknesses.
Use similar strategies.
Firms with similar resources are direct and
mutually acknowledged competitors.
Competitor nalysis
technique used to help the Iirm understand its
competitors
The Iirst step to being able to predict competitors`
behavior in the Iorm oI its competitive actions and
responses
Drivers o1
Competitive
Behavior
Motivation
wareness
Model o1 Competitive Rivalry Model o1 Competitive Rivalry
Do competitors recognize the degree
o1 their mutual interdependence?
What incentives do 1irms have to take
action or respond to an attack?
bility
Do 1irms have the resources
necessary to attack or respond?
%actical
ctions
Major cquisition Example
%ypes o1 Competitive ctions
Strategic
ctions
Price cut
Example
SigniIicant commitments oI speciIic and
distinctive organizational resources
DiIIicult to implement
DiIIicult to reverse
Involves Iewer resources
Relatively easy to implement or reverse
Undertaken to 'Iine tune strategy
Strategic and Tactical ctions
Strategic Action (or Response)
A market-based move that involves a
significant commitment of organizational
resources and is difficult to implement and
reverse.
Tactical Action (or Response)
A market-based move that is taken to fine-
tune a strategy:
Usually involves fewer resources.
s relatively easy to implement and reverse.
nter1irm Rivalry
Likelihood o1 ttack
First Mover Incentives
Organizational size
Quality
Likelihood o1 Response
Type oI Competitive ction
ctor`s Reputation
Dependence on the Market
Model o1 Competitive Rivalry
First Mover advantages can be
substantial
Smaller Iirms may be more
Ilexible, but larger Iirms may
have more slack resources
Goods/services must meet or
exceed customers` expectations
Tactical actions generate quick
responses while strategic actions
elicit Iewer total responses
Firms are more likely to respond
to actions by reputable actors
Firms with high market
dependence are more likely to
respond
Likelihood oI Response
Responses to a competitor's action are
taken when 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.
Damages the firm's ability to use its
capabilities to create or maintain an
advantage.
Makes the firm's market position becomes
less defensible.
"uality
Product quality dimensions
include:
PerIormance
Features
Flexibility
Durability
ConIormance
Serviceability
esthetics
Perceived quality
Service quality dimensions
include:
Timeliness
Courtesy
Consistency
Convenience
Completeness
ccuracy
Competitive
Market %ypes
Slow-Cycle
Standard-Cycle
Model o1 Competitive Dynamics
Fast-Cycle
$low cycle markets are 1requently
shielded by monopoly power or strong
brand loyalties 1or long periods o1 time
May lead to sustainable competitive
advantage
$tandard cycle markets oIten lead to
highly competitive pressures as 1irms
seek large market shares & customer
loyalty Sustained competitive
advantage is possible iI Iirms
continuously upgrade their quality
ast cycle markets are intensely dynamic
Iirst mover advantage is oIten
unsustainable as imitation occurs quickly
and somewhat inexpensively
Sustainable competitive advantage is
unlikely