Chapter 5 - Competitive Rivalry and Competitive Dynamics

Likelihood of Attack

1. first mover benefits, 2. organizational size 3. quality

Competitive Rivalry - 3rd sequence

Competitive action - strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position. Competitive response - a strategic or tactical action the firm takes to counter the effects of a competitor's competitive action. Strategic action/response - market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse Tactical action/response - market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse.

Types of competitive action

Depends if its strategical or tactical actions Strategic actions > fewer responses because strategic responses take a lot of time and resources and can be difficult to implement and reverse • Can also delay the competitor's response to that action Strategic or tactical actions that target a large number of competitor's customers or if effects are significant, a response will likely come.

Organizational size

Small firms more likely to launch competitive actions and tend to do it more quickly. • Nimble and flexible competitors who rely on speed and surprise > more variety in their competitive actions Large firms are likely to initiate more competitive actions with more strategic actions

Likelihood of Response

- likely to respond to a competitor's action when either the action leads to better use of the competitor's capabilities to develop a stronger competitive advantage or an improvement in its market position the action damages the firm's ability to use its core competencies to create or maintain an advantage or the firm's market position becomes harder to defend - type of competitive action - actor's reputation - market dependence

Product Quality Dimensions

-Performance -Features -Flexbility -Durability -Serviceability -Aesthetics -Conformance to Specifications -Perceived Quality

competitor analysis - 1st sequence

By understanding and being able to predict what the competition it avoids competitive blind spots - lacking the information to predict rival's behavior and actions - market commonality - resource commonality

Competitve Rivalry - 3rd sequence

Likelihood of attack likelihood of response

Outcomes - 4th sequence

Market position Financial Performance

Competitive Dynamics

Ongoing actions and responses taking place between all firms competing within a market for advantageous positions.

Failure to Align Assumptions that Drive Strategy With Changes in the Environment

Premium position eroded - Inability to respond to new, low-cost competitive challenges or a shift in customer valuation of product / service features Innovation breakdown - Problems in managing the process for updating existing products and services, as well as creating new ones Core business abandoned - Failure to exploit growth opportunities in the existing core business E.g. Kmart vs. Wal-Mart Talent shortfall - Lack of staff with the skills and capabilities required for strategy execution

Competitive Dynamics

The total set of actions and responses taken by all firms competing within a market.

Actor's Reputation

To predict the likelihood of a competitor's response to a current or planned action, firms evaluate the responses that the competitor has taken previously when attacked—past behavior is assumed to be a predictor of future behavior. Competitors are more likely to respond to strategic or tactical actions when they are taken by a market leader In contrast to a firm with a strong reputation, competitors are less likely to respond to actions taken by a company with a reputation for risky, complex, and unpredictable competitive behavior.

Strategic Action/Response

a market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse

Tactical Action/Response

a market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse

Competitive action

a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position

Competitive Response

a strategic or tactical action the firm takes to counter the effects of a competitor's competitive action

Blue Ocean Strategy

a strategy that seeks to gain a durable competitive advantage by abandoning efforts to beat out competitors in existing markets ... And invent a new industry, or distinctive market segment, that renders existing competitors largely irrelevant, thereby allowing a company to create and capture altogether new demand

Model of Competitive Rivalry

competitor analysis -> drivers of competitive behavior -> competitive rivalry -> outcomes - presents the sequence of activities commonly involved in competition between a firm and its competitors. - Use this model to understand how to predict a competitor's behavior and reduce the uncertainty associated with it.

market dependence

denotes the extent to which a firm's revenues or profits are derived from a particular market competitors with high market dependence are likely to respond strongly to attacks threatening their market position

Ability

each firm's resources and flexibility they provide. Resource dissimilarity - the more significant the difference between resources owed by the acting firm and those against whom it has taken action, the longer is the delay by the firm with a resource disadvantage.

competitors

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

Drivers of Competitive Behavior - 2nd sequence

market commonality and resource similarity influence the drivers (awareness, motivation, and ability) of competitive behavior. In turn, the drivers influence the firm's actual competitive behavior, as revealed by the actions and responses it takes while engaged in competitive rivalry. 1. Awareness 2. Motivation 3. Ability

Fast-cycle markets

markets in which the firm's capabilities that contribute to competitive advantages aren't shielded from imitation and where imitation is often rapid and inexpensive o Competitive advantages aren't sustainable o Rapidly innovating is important here o Reverse engineering used to imitate and improve competitor's products o Technology doesn't get patent in some areas o focus on learning how to rapidly and continuously develop new competitive advantages that are superior to those they replace o strategic alliances to gain access to new technologies is common o rapid product upgrades > quick product innovations (Example, APPLE)

standard-cycle markets

markets in which the firm's competitive advantages are partially shielded from imitation and imitation is moderately costly o Competitive advantages are partially sustainable in standard-cycle markets, but only when the firm is able to continuously upgrade the quality of its capabilities as a foundation for being able to stay ahead of competitors o Seek market share Because of large volumes, the size of mass markets, and the need to develop scale economies, the competition for market share is intense in standard-cycle markets o gain customer loyalty through brand names o to serve many customers in what are typically highly competitive markets. o Imitation is faster and less costly than slow-cycle but imitation is slower and more expensive than fast-cycle o Innovation is more incremental than radical

slow-cycle markets

markets in which the firm's competitive advantages are shielded from imitation, commonly for long periods of time, and where imitation is costly o Competitive advantages are sustainable over longer periods of time Building a unique and proprietary capability produces a competitive advantage and success • Protect, maintain, and extend that advantage o Major strategic actions, e.g. acquisitions carry less risk in these cycles. o Example: Disney's proprietary in its characters, patents by FDA o Firms launch a product > develop proprietary advantage > exploit for as long as possible while its shielded from competition > counterattack > repeat

multimarket competition

occurs when firms compete against each other in several product or geographic markets (eg. google and amazon)

first mover benefits

relate to a firm that takes an initial competitive action in order to build or defend its competitive advantages, or to improve its market position emphasize r&D to develop innovative goods/services that customers will value Good for fast-cycle markets; with rapid technological developments and relatively short product life cycles. • gain the loyalty of customers who may become committed to the goods or services of the firm that first made them available. • gain market share that can be difficult for competitors to take during future competitive rivalry agggressive and willing to experiment with innovation and take higher yet reasonable risks and must retain that ability to do so. • Have available resources to invest in R&D • Have Slack - the buffer or cushion provided by actual or obtainable resources that aren't currently in use and are in excess of the minimum resources needed to produce a given level of organizational output Second Mover - firm that responds to the first mover's competitive action, typically through imitation • More cautious • Finds mistakes in first mover so that they can avoid them and the problems with it. • Can solve problems and provide additional value that first mover didn't have Late mover - firm that responds to a competitive action a significant amount of time after the first mover's action and the second mover's response • Usually a niche strategy with lower-cost production and manufacturing.

awareness

the extent to which competitors recognize the degree of their mutual interdependence that results from market commonality and resource similarity. o Greatest when firms have highly similar resources to use while competing against each other in multiple markets. - lack of awareness > excessive competition > negative effect on all firms performances

resource similarity

the extent to which the firm's tangible and intangible resources are comparable to a competitor's in terms of both type and amount firms with similar types and amounts of resources are likely to have similar strengths and weaknesses and use similar strategies to pursue similar opportunities in the external environment (EG Fedex and UPS)

Motivaton

the firm's incentive to take action or respond to a competitor's attack relates to perceived gains or losses. o Could use resources for other purposes to compete against different rivals o Firm more likely to attack the rival with low market commonality

market commonality

the number of markets with which the firm and a competitor are jointly involved and the degree of importance of the individual markets to each o Firms competing against one another in several or many markets are engaged in multi-market competition (coca-cola, pepsi in soft drinks and bottled water) o Mutlimarket competition reduces competitive rivalry but some firms will still compete when the potential rewards are high.

Competitive Rivalry

the ongoing set of competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position most dominant influence is on the firm's business-level/strategies.

Competitive Behavior

the set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position

Service Quality Dimensions

timeliness, courtesy, consistency, convenience, completeness, accuracy

Quality

when the firm's goods or services meet or exceed customers' expectations. Product Quality Service Quality, If quality is institutionalized throughout entire org then it'll be more emphasis on improving it.