BA 495.

009 Chapter Five

Competitive Rivalry & Competitive Dynamics

Agenda
Framework for Competitive Dynamics Competitive Rivalry
Market Commonality & Resource Similarity Awareness, Motivation & Ability Likelihood of Attack Likelihood of Response

Competitive Dynamics
Slow-cycle Markets Fast-cycle Markets Standard-cycle Markets

Wrap-up
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Framework for Competitive Dynamics

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Definitions
Competitors
Firms operating in the same market, offering similar products and targeting similar customers.

Competitive Rivalry
The ongoing set of competitive actions and responses occurring between competitors. Competitive rivalry influences an individual firms ability to gain and sustain competitive advantages.

Competitive Dynamics
The total set of actions and responses taken by all firms competing within a market.
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Competitive Dynamics Versus 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 (slowcycle, fast-cycle, and standard-cycle) Effects of market speed on actions and responses of all competitors in the market

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Competitive Rivalry

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A Model of Competitive Rivalry

Firms are mutually interdependent
A firms competitive actions have noticeable effects on its competitors. A firms competitive actions elicit competitive responses from its competitors.

Competitors feel each others actions and responses.

Marketplace success is a function of both individual strategies and the consequences of their use.

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A Model of Competitive Rivalry

Competitive Analysis Market commonality Resource similarity
Drivers of Competitive Behavior Awareness Motivation Ability

Feedback
Outcomes Market position Financial performance

Interfirm Rivalry Likelihood of Attack

First-mover incentives Organizational size Quality

Likelihood of Response
Type of competitive action Reputation Market dependence

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Competitive Analysis: 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.
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Competitive Analysis: Resource Similarity

Resource Similarity
How comparable the firms tangible and intangible resources are to a competitors 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.
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The Three Drivers of Competitive Behavior

Awareness

Awareness is
the extent to which competitors recognize the degree of their mutual interdependence that results from: Market commonality Resource similarity

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The Three Drivers of Competitive Behavior

Awareness Motivation Motivation concerns
the firms incentive to take action or to respond to a competitors attack and relates to perceived gains and losses

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The Three Drivers of Competitive Behavior

Awareness Motivation Ability

Ability relates to
each firms resources the flexibility these resources provide

Without available resources the firm lacks the ability to

attack a competitor respond to the competitors actions

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Strategic and Tactical Actions

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. Is relatively easy to implement and reverse.

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Likelihood of Attack

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Factors Affecting Likelihood of Attack

First-Mover Incentives
First mover: A firm that takes an initial competitive action to build or defend its competitive advantages or to improve its market position. First movers can gain:
The loyalty of customers who may become committed to the firms goods or services. Market share that can be difficult for competitors to take during future competitive rivalry.

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Factors Affecting Likelihood of Attack

First Mover Second mover responds to the first movers competitive action, typically through imitation:
Studies customers reactions to product innovations. Can avoid both the mistakes and the huge spending of the first-movers. May develop more efficient processes and technologies.

Second Mover Incentives

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Factors Affecting Likelihood of Attack

First Mover Second Mover Late Mover
Late mover responds to a competitive action only after considerable time has elapsed. Any success achieved will be slow in coming and much less than that achieved by first and second movers. Late movers competitive action allows it to earn only average returns and delays its understanding of how to create value for customers.

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Factors Affecting Likelihood of Attack

First Mover Second Mover Late Mover Organizational Size- Small
Small firms are more likely:
To launch a wide variety of competitive actions. To be quicker in doing so.

Small firms are perceived as:

Nimble and flexible competitors Relying on speed and surprise to defend competitive advantages or develop new ones while engaged in competitive rivalry. Having the flexibility needed to launch a greater variety of competitive actions.

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Factors Affecting Likelihood of Attack

First Mover Second Mover Late Mover Organizational Size -Large
Large firms are likely to initiate more strategic actions during a given time period Large organizations commonly have the slack resources required to launch a larger number of total competitive actions Large organizations are more likely to have more significant market commonality with some competitors, making them less likely to initiate an attack.

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Factors Affecting Likelihood of Attack

First Mover Second Mover Late Mover Organizational Size Quality Quality exists when the firms goods or services meet or exceed customers expectations Quality dimensions are different for services versus products Firms with lower quality are less likely to attack their competitors directly

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Likelihood of Response

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Likelihood of Response
Responses to a competitors action are taken when the action:
Leads to better use of the competitors capabilities to gain or produce stronger competitive advantages or an improvement in its market position. Damages the firms ability to use its capabilities to create or maintain an advantage.
Makes the firms market position becomes less defensible.

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Factors Affecting Likelihood of Response

Firms study three other factors to predict how a competitor is likely to respond to competitive actions:
Type of competitive action Reputation Market dependence

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Factors Affecting Strategic Response

Type of Competitive Action Strategic actions receive strategic responses
Strategic actions elicit fewer total competitive responses. The time needed to implement and assess a strategic action delays competitors responses.

Tactical responses are taken to counter the effects of tactical actions

A competitor likely will respond quickly to a tactical actions

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Factors Affecting Strategic Response

Type of Competitive Action Actors Reputation An actor is the firm taking an action or response The firm studies responses that a competitor has taken previously when attacked to predict likely responses. A firm is more likely to respond to a competitor if the competitor is a market leader and/or has a positive reputation in the market.

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Factors Affecting Strategic Response

Type of Competitive Action Actors Reputation Market dependence is the extent to which a firms revenues or profits are derived from a particular market. In general, firms can predict that competitors with high market dependence are likely to respond strongly to attacks threatening their market position.

Dependence on the market

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Competitive Dynamics

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Competitive Dynamics versus Rivalry

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

Competitive Rivalry
Ongoing actions and responses taking place between an individual firm and its competitors for advantageous market position.

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Competitive Dynamics
Slow-Cycle Markets Competitive advantages are shielded from imitation for long periods of time and imitation is costly. Competitive advantages are sustainable in slow-cycle markets. All firms concentrate on competitive actions and responses to protect, maintain and extend proprietary competitive advantage.

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Slow-Cycle Markets

SOURCE: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by taking strategic initiative, Academy of Management Executive, 11(2): 111118.

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Competitive Dynamics
Slow-Cycle Markets Fast-Cycle Markets The firms competitive advantages arent shielded from imitation because imitation happens quickly and somewhat inexpensively Competitive advantages arent sustainable
Competitors use reverse engineering to quickly imitate or improve on the firms products Non-proprietary technology is diffused rapidly

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Fast-Cycle Markets

Source: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by taking strategic initiative, Academy of Management Executive, 11(2): 111118.

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Competitive Dynamics
Slow-Cycle Markets Fast-Cycle Markets Moderate cost of imitation may shield competitive advantages. Competitive advantages are partially sustainable if their quality is continuously upgraded.

To be successful, firms: Standard-Cycle Markets

Seek large market shares Gain customer loyalty through brand names

Carefully control operations

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Wrap-up

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Wrap-up
Framework for Competitive Dynamics Competitive Rivalry
Market Commonality & Resource Similarity Awareness, Motivation & Ability Likelihood of Attack Likelihood of Response

Competitive Dynamics
Slow-cycle Markets Fast-cycle Markets Standard-cycle Markets

Questions
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