CHP 5 MGMT 4000

slow-cycle markets

markets in which competitors lack the ability to imitate the focal firm's competitive advantages that commonly last for long periods, and where imitation would be costly.

standard-cycle markets

markets in which some competitors may be able to imitate the focal firm's competitive advantages and where that imitation is moderately costly

SUMMARY

A competitor analysis is the first step the firm takes to be able to predict its competitors' actions and responses. In Chapter 2, we discussed what firms do to understand competitors. We extended this discussion in this chapter to describe what the firm does to predict competitors' market-based actions. Thus, understanding precedes prediction. Firms study market commonality (the number of markets with which competitors are involved jointly and their importance to each) and resource similarity (how comparable competitors' resources are in terms of type and amount) to complete a competitor analysis. In general, the greater the market commonality and resource similarity, the more firms acknowledge that they are direct competitors.

SUMMARY

Competitive behavior is the set of competitive actions and responses an individual firm takes while engaged in competitive rivalry. Competitive dynamics is the set of actions and responses taken by all firms that are competitors within a particular market.

SUMMARY

Competitors are firms competing in the same market, offering similar products, and targeting similar customers. Competitive rivalry is the ongoing set of competitive actions and responses occurring between competitors as they compete against each other for an advantageous market position. The outcomes of competitive rivalry influence the firm's ability to develop and then sustain its competitive advantages as well as the level (average, below average, or above average) of its financial returns.

SUMMARY

Firms study competitive rivalry in order to predict the competitive actions and responses each of their competitors is likely to take. Competitive actions are either strategic or tactical in nature. The firm takes competitive actions to defend or build its competitive advantages or to improve its market position. Firms take competitive responses to counter the effects of a competitor's competitive action. A strategic action or a strategic response requires a significant commitment of organizational resources, is difficult to implement successfully, and is difficult to reverse. In contrast, a tactical action or a tactical response requires fewer organizational resources and is easier to implement and reverse. For example, for an airline company, entering major new markets is an example of a strategic action or a strategic response; changing ticket prices in a particular market is an example of a tactical action or a tactical response.

SUMMARY

In addition to market commonality, resource similarity, awareness, motivation, and ability, three more specific factors affect the likelihood a competitor will take competitive actions. The first of these is first-mover benefits. First movers, those taking an initial competitive action, often gain loyal customers and earn above-average returns until competitors can respond successfully to their action. Not all firms can be first movers because they may lack the awareness, motivation, or ability required to engage in this type of competitive behavior.

SUMMARY

In slow-cycle markets, firms generally can maintain competitive advantages for some amount of time. Competitive dynamics in slow-cycle markets often include actions and responses intended to protect, maintain, and extend the firm's proprietary advantages. In fast-cycle markets, competition is substantial as firms concentrate on developing a series of temporary competitive advantages. This emphasis is necessary because firms' advantages in fast-cycle markets are not proprietary; as such, they are subject to rapid and relatively inexpensive imitation. Standard-cycle markets have a level of competition between that in slow- and fast-cycle markets; firms often (but not always) have a moderate amount of protection from competition in standard-cycle markets as they use competencies that produce competitive advantages with some sustainability. Competitors in standard-cycle markets serve mass markets and try to develop economies of scale to enhance their profitability. Innovation is vital to competitive success in each of the three types of markets. Companies should recognize that the set of competitive actions and responses taken by all firms differs by type of market.

SUMMARY

Market commonality and resource similarity shape the firm's awareness (the degree to which it and its competitors understand their mutual interdependence), motivation (the firm's incentive to attack or respond), and ability (the quality of the resources available to the firm to attack and respond). Having knowledge of these characteristics of a competitor increases the quality of the firm's predictions about that competitor's actions and responses.

SUMMARY

Moreover, some firms prefer to be a second mover (the firm responding to the first mover's action). By evaluating the first mover's product, customers' reactions to it, and the responses of other competitors to the first mover, the second mover may be able to avoid the early entrant's mistakes and find ways to improve upon the value created for customers by the first mover's product. Late movers (those that respond a long time after the original action was taken) commonly are lower performers and less competitive.

SUMMARY

Organizational size tends to reduce the variety of competitive actions that large firms launch, while it increases the variety of actions smaller competitors undertake. Ideally, a firm prefers to initiate a large number of diverse actions when engaging in competitive rivalry. Another factor, quality, is a base denominator for competing successfully in the global economy and for achieving competitive parity, at a minimum. However, quality is a necessary but insufficient condition for establishing an advantage.

SUMMARY

To predict a competitor's response to its actions, a firm examines the type of action (strategic or tactical) it took, the competitor's reputation for the nature of its competitive behavior, and that competitor's dependence on the market in which the focal firm took action. In general, the number of tactical responses firms take exceeds the number of strategic responses they take. Competitors respond more frequently to the actions taken by the firm with a reputation for predictable and understandable competitive behavior, especially if that firm is a market leader. In general, the firm can predict that when its competitor is highly dependent on its revenue and profitability in the market in which the firm took a competitive action, that competitor is likely to launch a strong response. However, firms with greater diversification across markets are less likely to respond to a particular action that affects only one of the markets in which they compete.

competitive response

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

market commonality

concerned with 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.

resource similarity

extent to which the firm's tangible and intangible resources compare favorably to a competitor's in terms of type and amount.

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.

second mover

firm that responds to the first mover's competitive action, typically through imitation.

first mover

firm that takes an initial competitive action to build or defend its competitive advantages or to improve its market position.

competitors

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

strategic action or strategic response

market-based move that firms take to fine-tune a strategy; these actions and responses involve fewer resources and are relatively easy to implement and reverse.

tactical action or tactical response

market-based move that firms take to fine-tune a strategy; these actions and responses involve fewer resources and are relatively easy to implement and reverse.

fast-cycle markets

markets in which competitors can imitate the focal firm's capabilities that contribute to its competitive advantages and where that imitation is often rapid and inexpensive.

competitive behavior

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

competitive action

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

competitive rivalry

the ongoing set of competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position.

competitive dynamics

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

multimarket competition

when firms compete against each other in several product or geographic markets.

quality

when the firm's products meet or exceed customers' expectations