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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:
Market commonalityMarket commonality
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
MotivationMotivation
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Drivers of Competitive Behavior (contDrivers of Competitive Behavior (contd)d)
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
MotivationMotivation
AbilityAbility
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Drivers of Competitive Behavior (contDrivers of Competitive Behavior (contd)d)
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
MotivationMotivation
MarketMarket
CommonalityCommonality
AbilityAbility
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Drivers of Competitive Behavior (contDrivers of Competitive Behavior (contd)d)
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
MotivationMotivation
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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Factors Affecting Likelihood ofAttack (contFactors Affecting Likelihood ofAttack (contd)d)
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.
First MoverFirst Mover
Second MoverSecond Mover
Late MoverLate Mover
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Factors Affecting Likelihood ofAttack (contFactors Affecting Likelihood ofAttack (contd)d)
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.
First MoverFirst Mover
Second MoverSecond Mover
OrganizationalOrganizational
SizeSize-- SmallSmall
Late MoverLate Mover
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Factors Affecting Likelihood ofAttack (contFactors Affecting Likelihood ofAttack (contd)d)
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
First MoverFirst Mover
Second MoverSecond Mover
OrganizationalOrganizational
SizeSize --LargeLarge
Late MoverLate Mover
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Factors Affecting Likelihood ofAttack (contFactors Affecting Likelihood ofAttack (contd)d)
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:
First MoverFirst Mover
Second MoverSecond Mover
QualityQuality(Product)(Product)
Late MoverLate Mover
OrganizationalOrganizational
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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Factors Affecting Likelihood ofAttack (contFactors Affecting Likelihood ofAttack (contd)d)
Service quality dimensionsService quality dimensions
include:include: TimelinessTimeliness
CourtesyCourtesy
ConsistencyConsistency
ConvenienceConvenience
CompletenessCompleteness
AccuracyAccuracy
First MoverFirst Mover
Second MoverSecond Mover
QualityQuality(Service)(Service)
Late MoverLate Mover
OrganizationalOrganizational
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.
Type ofType ofCompetitiveCompetitive
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.
Type ofType ofCompetitiveCompetitive
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))
Market commonalityMarket commonality
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
SlowSlow--CycleCycleMarketsMarkets
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
SlowSlow--CycleCycleMarketsMarkets
FastFast--CycleCycleMarketsMarkets
StandardStandard--CycleCycleMarketsMarkets
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