Strategic Competition

8/8/2019 Strategic Competition

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2007 Thomson/South-Western. All rights reserved. 51


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KKNOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES

1.1. Define competitors, competitive rivalry, competitive behavior, andDefine competitors, competitive rivalry, competitive behavior, and

competitive dynamics.competitive dynamics.

2.2. Describe market commonality and resource similarity as theDescribe market commonality and resource similarity as the

building blocks of a competitor analysis.building blocks of a competitor analysis.

3.3. Explain awareness, motivation, and ability as drivers of competitiveExplain awareness, motivation, and ability as drivers of competitive

behavior.behavior.

4.4. Discuss factors affecting the likelihood a competitor will takeDiscuss factors affecting the likelihood a competitor will take

competitive actions.competitive actions.

5.5. Discuss factors affecting the likelihood a competitor will respond toDiscuss factors affecting the likelihood a competitor will respond to

actions taken against it.actions taken against it.

6.6. Explain competitive dynamics in slowExplain competitive dynamics in slow--cycle, fastcycle, fast--cycle, andcycle, and

standardstandard--cycle markets.cycle markets.

Studying this chapter should provide you with the strategicmanagement knowledge needed to:


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DefinitionsDefinitions

CompetitorsCompetitors

Firms operating in the same market, offering similarFirms operating in the same market, offering similar

products and targeting similar customers.products and targeting similar customers.

Competitive RivalryCompetitive RivalryThe ongoing set of competitive actions and responsesThe ongoing set of competitive actions and responses

occurring between competitors.occurring between competitors.

Competitive rivalry influences an individual firmCompetitive rivalry influences an individual firmss

ability to gain and sustain competitive advantages.ability to gain and sustain competitive advantages.


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DefinitionsDefinitions

Competitive BehaviorCompetitive BehaviorThe set of competitive actions and competitiveThe set of competitive actions and competitive

responses the firm takes to build or defend itsresponses the firm takes to build or defend its

competitive advantages and to improve its marketcompetitive advantages and to improve its market

position.position. Multimarket CompetitionMultimarket Competition

Firms competing against each other in severalFirms competing against each other in several

product or geographic markets.product or geographic markets.

Competitive DynamicsCompetitive DynamicsThe total set of actions and responses taken by allThe total set of actions and responses taken by all

firms competing within a market.firms competing within a market.


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From Competitors to Competitive DynamicsFrom Competitors to Competitive Dynamics

CompetitorsCompetitors To gain an advantageousTo gain an advantageous

market positionmarket position

Competitive BehaviorCompetitive Behavior Competitive actionsCompetitive actions

Competitive responsesCompetitive responses

Competitive DynamicsCompetitive Dynamics

Competitive actions and responses takenCompetitive actions and responses taken

by all firms competing in a marketby all firms competing in a market

Engage

in

Why?

How?

What Results?

What Results?

CompetitiveCompetitiveRivalryRivalry


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FigureFigure 5.15.1 From Competitors to Competitive DynamicsFrom Competitors to Competitive Dynamics

Source: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry: Toward

a theoretical integration, Academy of Management Review, 21: 100134.


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Competitive RivalryCompetitive Rivalrys Effect on Strategys Effect on Strategy

Success of a strategy is determined by:Success of a strategy is determined by:The firmThe firms initial competitive actions.s initial competitive actions.

How well it anticipates competitorsHow well it anticipates competitors responses toresponses to

them.them.

How well the firm anticipates and responds to itsHow well the firm anticipates and responds to itscompetitorscompetitors initial actions.initial actions.

Competitive rivalry:Competitive rivalry:

Affects all types of strategies.Affects all types of strategies.

Has the strongest influence on the firmHas the strongest influence on the firms businesss business--

level strategy or strategies.level strategy or strategies.


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AModel of Competitive RivalryAModel of Competitive Rivalry

Firms are mutually interdependentFirms are mutually interdependent

A firmA firms competitive actions have noticeable effectss competitive actions have noticeable effects

on its competitors.on its competitors.

A firmA firms competitive actions elicit competitives competitive actions elicit competitive

responses from its competitors.responses from its competitors.

Competitors feel each otherCompetitors feel each others actions and responses.s actions and responses.

Marketplace success is a function of bothMarketplace success is a function of both

individual strategies and the consequences ofindividual strategies and the consequences oftheir use.their use.


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AModel of Competitive RivalryAModel of Competitive Rivalry

Competitive AnalysisCompetitive Analysis

Market commonalityMarket commonality

Resource similarityResource similarity

Drivers of CompetitiveDrivers of Competitive

BehaviorBehavior

AwarenessAwareness

MotivationMotivation

AbilityAbility

Interfirm RivalryInterfirm Rivalry

Likelihood of AttackLikelihood of Attack FirstFirst--mover incentivesmover incentives

Organizational sizeOrganizational size

QualityQuality

Likelihood of ResponseLikelihood of Response Type of competitive actionType of competitive action

ReputationReputation

Market dependenceMarket dependence

OutcomesOutcomes

Market positionMarket position FinancialFinancial

performanceperformance

FeedbackFeedback


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FIGUREFIGURE 5.25.2 AModel of Competitive RivalryAModel of Competitive Rivalry

Source: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:

Toward a theoretical integration,A

cademy of Management Review, 21: 100

134.


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CompetitorAnalysisCompetitorAnalysis

Competitor analysis is used to help a firmCompetitor analysis is used to help a firmunderstand its competitors.understand its competitors.

The firm studies competitorsThe firm studies competitors future objectives,future objectives,

current strategies, assumptions, and capabilities.current strategies, assumptions, and capabilities. With the analysis, a firm is better able to predictWith the analysis, a firm is better able to predict

competitorscompetitors behaviors when forming itsbehaviors when forming its

competitive actions and responses.competitive actions and responses.


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Market CommonalityMarket Commonality

Market commonality is concerned with:Market commonality is concerned with:The number of markets with which a firm and aThe number of markets with which a firm and a

competitor are jointly involved.competitor are jointly involved.

The degree of importance of the individual markets toThe degree of importance of the individual markets to

each competitor.each competitor.

Firms competing against one another in severalFirms competing against one another in several

or many markets engage in multimarketor many markets engage in multimarket

competition.competition.

A firm with greater multimarket contact is less likely toA firm with greater multimarket contact is less likely to

initiate an attack, but more likely to more respondinitiate an attack, but more likely to more respond

aggressively when attacked.aggressively when attacked.


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Resource SimilarityResource Similarity

Resource SimilarityResource SimilarityHow comparable the firmHow comparable the firms tangible and intangibles tangible and intangible

resources are to a competitorresources are to a competitors in terms of both typess in terms of both typesand amounts.and amounts.

Firms with similar types and amounts ofFirms with similar types and amounts ofresources are likely to:resources are likely to:

Have similar strengths and weaknesses.Have similar strengths and weaknesses.

Use similar strategies.Use similar strategies.

Assessing resource similarity can be difficult ifAssessing resource similarity can be difficult ifcritical resources are intangible rather thancritical resources are intangible rather thantangible.tangible.


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FIGUREFIGURE 5.35.3 AFramework of CompetitorAnalysisAFramework of CompetitorAnalysis

Source: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:

Toward a theoretical integration, Academy of Management Review, 21: 100134.


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Drivers of Competitive BehaviorDrivers of Competitive Behavior

Awareness isAwareness is

the extent to whichthe extent to which

competitors recognize thecompetitors recognize the

degree of their mutualdegree of their mutual

interdependence thatinterdependence that

results from:results from:


Resource similarityResource similarity

AwarenessAwareness


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Drivers of Competitive Behavior (contDrivers of Competitive Behavior (contd)d)

Motivation concernsMotivation concerns

the firmthe firms incentive to takes incentive to take

actionaction

or to respond to aor to respond to a

competitorcompetitors attacks attack

and relates to perceivedand relates to perceived

gains and lossesgains and losses

AwarenessAwareness



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Ability relates toAbility relates to

each firmeach firms resourcess resources

the flexibility thesethe flexibility these

resources provideresources provide

Without availableWithout availableresources the firm lacksresources the firm lacks

the ability tothe ability to

attack a competitorattack a competitor

respond to the competitorrespond to the competitorss

actionsactions

AwarenessAwareness


AbilityAbility


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A firm is more likely to attackA firm is more likely to attack

the rival with whom it has lowthe rival with whom it has low

market commonality than themarket commonality than the

one with whom it competes inone with whom it competes in

multiple markets.multiple markets. Given the strong competitionGiven the strong competition

under market commonality, it isunder market commonality, it is

likely that the attacked firm willlikely that the attacked firm will

respond to its competitorrespond to its competitorss

action in an effort to protect itsaction in an effort to protect itsposition in one or moreposition in one or more

markets.markets.

AwarenessAwareness


MarketMarket

CommonalityCommonality

AbilityAbility


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The greater the resourceThe greater the resource

imbalance between the acting firmimbalance between the acting firm

and competitors or potentialand competitors or potential

responders, the greater will be theresponders, the greater will be the

delay in response by the firm with adelay in response by the firm with a

resource disadvantage.resource disadvantage.

When facing competitors withWhen facing competitors with

greater resources or moregreater resources or more

attractive market positions, firmsattractive market positions, firmsshould eventually respond, noshould eventually respond, no

matter how challenging thematter how challenging the

response.response.

AwarenessAwareness


ResourceResourceDissimilarityDissimilarity

AbilityAbility

MarketMarket

CommonalityCommonality


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Competitive RivalryCompetitive Rivalry

Competitive ActionCompetitive ActionA strategic or tactical action the firm takes to build orA strategic or tactical action the firm takes to build or

defend its competitive advantages or improve itsdefend its competitive advantages or improve its

market position.market position.

Competitive ResponseCompetitive ResponseA strategic or tactical action the firm takes to counterA strategic or tactical action the firm takes to counter

the effects of a competitorthe effects of a competitors competitive action.s competitive action.


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Strategic and Tactical ActionsStrategic and Tactical Actions

Strategic Action (or Response)Strategic Action (or Response)

A marketA market--based move that involves a significantbased move that involves a significant

commitment of organizational resources and iscommitment of organizational resources and is

difficult to implement and reverse.difficult to implement and reverse.

Tactical Action (or Response)Tactical Action (or Response)

A marketA market--based move that is taken to finebased move that is taken to fine--tune atune a

strategy:strategy:

Usually involves fewer resources.Usually involves fewer resources.

Is relatively easy to implement and reverse.Is relatively easy to implement and reverse.


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Factors Affecting Likelihood ofAttackFactors Affecting Likelihood ofAttack

First movers allocate funds for:First movers allocate funds for:

Product innovation andProduct innovation and

developmentdevelopment

Aggressive advertisingAggressive advertising

A

dvanced research andA

dvanced research anddevelopmentdevelopment

First movers can gain:First movers can gain:

The loyalty of customers who mayThe loyalty of customers who may

become committed to the firmbecome committed to the firmss

goods or services.goods or services.

Market share that can be difficultMarket share that can be difficult

for competitors to take duringfor competitors to take during

future competitive rivalry.future competitive rivalry.

FirstFirst--MoverMoverIncentivesIncentives

First Mover

Afirm that takes an

initial competitive action

in order to build or

defend its competitive

advantages or to

improve its market

position.


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Factors Affecting Likelihood ofAttack (contFactors Affecting Likelihood ofAttack (contd)d)

Second mover responds to the firstSecond mover responds to the first

movermovers competitive action, typicallys competitive action, typically

through imitation:through imitation:

Studies customersStudies customers reactions toreactions to

product innovations.product innovations.

Tries to find any mistakes the firstTries to find any mistakes the first

mover made, and avoid them.mover made, and avoid them.

Can avoid both the mistakes andCan avoid both the mistakes and

the huge spending of the firstthe huge spending of the first--

movers.movers. May develop more efficientMay develop more efficient

processes and technologies.processes and technologies.

First MoverFirst Mover

Second MoverSecond MoverIncentivesIncentives


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Late mover responds to aLate mover responds to a

competitive action only aftercompetitive action only after

considerable time has elapsed.considerable time has elapsed.

Any success achieved will be slowAny success achieved will be slow

in coming and much less than thatin coming and much less than thatachieved by first and secondachieved by first and second

movers.movers.

Late moverLate movers competitive actions competitive action

allows it to earn only averageallows it to earn only average

returns and delays itsreturns and delays itsunderstanding of how to createunderstanding of how to create

value for customers.value for customers.


Second MoverSecond Mover

Late MoverLate Mover


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Small firms are more likely:Small firms are more likely:

To launch competitive actions.To launch competitive actions.

To be quicker in doing so.To be quicker in doing so.

Small firms are perceived as:Small firms are perceived as:

Nimble and flexible competitorsNimble and flexible competitors

Relying on speed and surprise toRelying on speed and surprise to

defend competitive advantages ordefend competitive advantages or

develop new ones while engaged indevelop new ones while engaged in

competitive rivalry.competitive rivalry.

Having the flexibility needed toHaving the flexibility needed tolaunch a greater variety oflaunch a greater variety of

competitive actions.competitive actions.



OrganizationalOrganizational

SizeSize-- SmallSmall



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Large firms are likely to initiateLarge firms are likely to initiate

more competitive actions as well asmore competitive actions as well as

strategic actions during a given timestrategic actions during a given time

periodperiod

Large organizations commonlyLarge organizations commonly

have the slack resources requiredhave the slack resources required

to launch a larger number of totalto launch a larger number of total

competitive actionscompetitive actions

Think and act big and weThink and act big and well getll get

smaller. Think and act small andsmaller. Think and act small and

wewell get bigger.ll get bigger.

Herb KelleherHerb Kelleher

FormerCEO, Southwest AirlinesFormerCEO, Southwest Airlines




SizeSize --LargeLarge



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Quality exists when the firmQuality exists when the firmss

goods or services meet orgoods or services meet or

exceed customersexceed customers

expectationsexpectations Product quality dimensionsProduct quality dimensions

include:include:



QualityQuality(Product)(Product)



SizeSize

PerformancePerformance

FeaturesFeatures FlexibilityFlexibility

DurabilityDurability

ConformanceConformance

ServiceabilityServiceability AestheticsAesthetics

PerceivedPerceived

qualityquality


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TableTable 5.15.1 Quality Dimensions ofGoods and ServicesQuality Dimensions ofGoods and Services

Product Quality Dimensions1. PerformanceOperating characteristics

2. FeaturesImportant special characteristics

3. FlexibilityMeeting operating specifications over some

period of time

4. DurabilityAmount of use before performance deteriorates

5. ConformanceMatch with preestablished standards

6. ServiceabilityEase and speed of repair

7. AestheticsHow a product looks and feels

8. Perceived qualitySubjective assessment of characteristics

(product image)

SOURCES: Adapted from J.W. Dean, Jr., & J. R. Evans, 1994, Total Quality: Management, Organization and Society, St.

Paul, MN:West Publishing Company; H.V. Roberts & B. F. Sergesketter, 1993, Quality Is Personal, New York:The Free

Press; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.


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Service quality dimensionsService quality dimensions

include:include: TimelinessTimeliness

CourtesyCourtesy

ConsistencyConsistency

ConvenienceConvenience

CompletenessCompleteness

AccuracyAccuracy



QualityQuality(Service)(Service)



SizeSize


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TableTable 5.15.1 Quality Dimensions ofGoods and Services (contQuality Dimensions ofGoods and Services (contd)d)

SOURCES: Adapted from J.W. Dean, Jr., & J. R. Evans, 1994, Total Quality: Management, Organization and Society, St.

Paul, MN:West Publishing Company; H.V. Roberts & B. F. Sergesketter, 1993, Quality Is Personal, New York:The Free

Press; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.

Service Quality Dimensions

1. TimelinessPerformed in the promised period of time

2. CourtesyPerformed cheerfully

3. ConsistencyGiving all customers similar experiences each time

4. ConvenienceAccessibility to customers

5. CompletenessFully serviced, as required

6. AccuracyPerformed correctly each time


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Likelihood of ResponseLikelihood of Response

Responses to a competitorResponses to a competitors action are takens action are takenwhen the action:when the action:

Leads to better use of the competitorLeads to better use of the competitors capabilities tos capabilities to

gain or produce stronger competitive advantages orgain or produce stronger competitive advantages or

an improvement in its market position.an improvement in its market position.

Damages the firmDamages the firms ability to use its capabilities tos ability to use its capabilities to

create or maintain an advantage.create or maintain an advantage.

Makes the firm

Makes the firm

s market position becomes lesss market position becomes lessdefensible.defensible.


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Factors Affecting Likelihood of ResponseFactors Affecting Likelihood of Response

Firms study three other factors to predict how aFirms study three other factors to predict how acompetitor is likely to respond to competitivecompetitor is likely to respond to competitive

actions:actions:

Type of competitive actionType of competitive action

ReputationReputation

Market dependenceMarket dependence


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Factors Affecting Strategic ResponseFactors Affecting Strategic Response

Strategic actions receiveStrategic actions receive

strategic responsesstrategic responses

Strategic actions elicit fewer totalStrategic actions elicit fewer total

competitive responses.competitive responses.

The time needed to implement andThe time needed to implement andassess a strategic action delaysassess a strategic action delays

competitorcompetitors responses.s responses.

Tactical responses are taken toTactical responses are taken to

counter the effects of tacticalcounter the effects of tactical

actionsactions

A competitor likely will respondA competitor likely will respond

quickly to a tactical actionsquickly to a tactical actions

Type ofType ofCompetitiveCompetitive

ActionAction


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Factors Affecting Strategic Response (contFactors Affecting Strategic Response (contd)d)

An actor is the firm taking anAn actor is the firm taking an

action or responseaction or response

Reputation is the positive orReputation is the positive or

negative attribute ascribed bynegative attribute ascribed by

one rival to another based onone rival to another based on

past competitive behavior.past competitive behavior.

The firm studies responses thatThe firm studies responses that

a competitor has takena competitor has taken

previously when attacked topreviously when attacked topredict likely responses.predict likely responses.


ActionAction

ActorActorssReputationReputation


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Factors Affecting Strategic Response (contFactors Affecting Strategic Response (contd)d)

Market dependence is theMarket dependence is the

extent to which a firmextent to which a firmss

revenues or profits are derivedrevenues or profits are derived

from a particular market.from a particular market.

In general, firms can predict thatIn general, firms can predict that

competitors with high marketcompetitors with high market

dependence are likely todependence are likely to

respond strongly to attacksrespond strongly to attacks

threatening their marketthreatening their marketposition.position.


ActionAction

ActorActorssReputationReputation

DependenceDependenceon the marketon the market


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Competitive Dynamics versus RivalryCompetitive Dynamics versus Rivalry

Competitive DynamicsCompetitive DynamicsOngoing actions and responses taking placeOngoing actions and responses taking place

betweenbetween all firmsall firms competing within a marketcompeting within a market

for advantageous positions.for advantageous positions.

Competitive RivalryCompetitive Rivalry

Ongoing actions and responses taking placeOngoing actions and responses taking place

betweenbetween an individual firman individual firm and itsand its

competitorscompetitors for advantageous marketfor advantageous marketposition.position.


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Competitive Dynamics versus Rivalry (contCompetitive Dynamics versus Rivalry (contd)d)

Competitive RivalryCompetitive Rivalry((Individual firmsIndividual firms))


and resource similarityand resource similarity

Awareness, motivationAwareness, motivation

and abilityand ability

First mover incentives,First mover incentives,

size and qualitysize and quality

Competitive DynamicsCompetitive Dynamics((All firmsAll firms))

Market speed (slowMarket speed (slow--

cycle, fastcycle, fast--cycle, andcycle, and

standardstandard--cyclecycle

Effects of marketEffects of market

speed on actions andspeed on actions and

responses of allresponses of all

competitors in thecompetitors in themarketmarket


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Competitive DynamicsCompetitive Dynamics

Competitive advantages areCompetitive advantages are

shielded from imitation for longshielded from imitation for long

periods of time and imitation isperiods of time and imitation is

costly.costly.

Competitive advantages areCompetitive advantages aresustainable in slowsustainable in slow--cycle markets.cycle markets.

All firms concentrate onAll firms concentrate on

competitive actions andcompetitive actions and

responses to protect, maintainresponses to protect, maintainand extend proprietaryand extend proprietary

competitive advantage.competitive advantage.

SlowSlow--CycleCycleMarketsMarkets


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FIGUREFIGURE 5.45.4 Gradual Erosion of a Sustained Competitive AdvantageGradual Erosion of a Sustained Competitive Advantage

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 (contCompetitive Dynamics (contd)d)

The firmThe firms competitives competitive

advantages arenadvantages arent shielded fromt shielded from

imitation.imitation.

Imitation happens quickly andImitation happens quickly and

somewhat expensivelysomewhat expensively

Competitive advantages arenCompetitive advantages arentt

sustainable.sustainable.

Competitors use reverse engineeringCompetitors use reverse engineering

to quickly imitate or improve on theto quickly imitate or improve on thefirmfirms productss products

NonNon--proprietary technology isproprietary technology is

diffused rapidlydiffused rapidly


FastFast--CycleCycleMarketsMarkets


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FIGUREFIGURE 5.55.5 Developing Temporary Advantages to Create SustainedDeveloping Temporary Advantages to Create SustainedAdvantageAdvantage

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 (contCompetitive Dynamics (contd)d)

Moderate cost of imitation mayModerate cost of imitation may

shield competitive advantages.shield competitive advantages.

Competitive advantages areCompetitive advantages are

partially sustainable if their qualitypartially sustainable if their quality

is continuously upgraded.is continuously upgraded.

FirmsFirms

Seek large market sharesSeek large market shares

Gain customer loyalty through brandGain customer loyalty through brand

namesnames Carefully control operationsCarefully control operations


FastFast--CycleCycleMarketsMarkets

StandardStandard--CycleCycleMarketsMarkets

Strategic Competition

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