Competitive Rivalry & Competitive Dynamics Chapter Five BA 495.009.

Competitive Rivalry &

Competitive Dynamics

Competitive Rivalry &


Chapter FiveChapter Five

BA 495.009BA 495.009

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AgendaAgenda• Framework for Competitive DynamicsFramework for Competitive Dynamics• Competitive RivalryCompetitive Rivalry

Market Commonality & Resource SimilarityMarket Commonality & Resource Similarity Awareness, Motivation & AbilityAwareness, Motivation & Ability Likelihood of AttackLikelihood of Attack Likelihood of ResponseLikelihood of Response

• Competitive DynamicsCompetitive Dynamics Slow-cycle MarketsSlow-cycle Markets Fast-cycle MarketsFast-cycle Markets Standard-cycle MarketsStandard-cycle Markets

• Wrap-upWrap-up

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Framework forCompetitive Dynamics

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DefinitionsDefinitions• CompetitorsCompetitors

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

• Competitive RivalryCompetitive Rivalry The ongoing set of competitive actions and responses The ongoing set of competitive actions and responses

occurring between competitors.occurring between competitors.

Competitive rivalry influences an individual firm’s Competitive rivalry influences an individual firm’s ability to gain and sustain competitive advantages.ability to gain and sustain competitive advantages.

• Competitive DynamicsCompetitive Dynamics The total set of actions and responses taken by all The total set of actions and responses taken by all

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

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Competitive Dynamics Versus RivalryCompetitive Dynamics Versus Rivalry

• Competitive Rivalry Competitive Rivalry (individual firms)(individual firms) Market commonality and Market commonality and

resource similarityresource similarity Awareness, motivation, Awareness, motivation,

and abilityand ability First mover incentives First mover incentives

and firm sizeand firm size

• Competitive Dynamics Competitive Dynamics (all firms)(all firms) Market speed (slow-Market speed (slow-

cycle, fast-cycle, and cycle, fast-cycle, and standard-cycle)standard-cycle)

Effects of market Effects of market speed on actions and speed on actions and responses of all responses of all competitors in the competitors in the marketmarket

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Competitive Rivalry

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A Model of Competitive RivalryA Model of Competitive Rivalry

• Firms are mutually interdependentFirms are mutually interdependent A firm’s competitive actions have noticeable effects A firm’s competitive actions have noticeable effects

on its competitors.on its competitors.

A firm’s competitive actions elicit competitive A firm’s competitive actions elicit competitive responses from its competitors.responses from its competitors.

Competitors feel each other’s actions and responses.Competitors feel each other’s actions and responses.

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

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A Model of Competitive RivalryA Model of Competitive Rivalry

Competitive AnalysisCompetitive Analysis• Market commonalityMarket commonality• Resource similarityResource similarity

Drivers of Competitive Drivers of Competitive BehaviorBehavior• AwarenessAwareness• MotivationMotivation• AbilityAbility

Interfirm RivalryInterfirm Rivalry• Likelihood of AttackLikelihood of Attack

• First-mover incentivesFirst-mover 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• Financial Financial

performanceperformance

FeedbackFeedback

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Competitive Analysis: Market Competitive Analysis: Market CommonalityCommonality• Market commonality is concerned with: Market commonality is concerned with:

The number of markets with which a firm and a The 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 to The degree of importance of the individual markets to each competitor.each competitor.

• Firms competing against one another in several Firms competing against one another in several or many markets engage in multimarket or many markets engage in multimarket competition.competition. A firm with greater multimarket contact is less likely to A firm with greater multimarket contact is less likely to

initiate an attack, but more likely to more respond initiate an attack, but more likely to more respond aggressively when attacked.aggressively when attacked.

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Competitive Analysis: Resource Competitive Analysis: Resource SimilaritySimilarity• Resource SimilarityResource Similarity

How comparable the firm’s tangible and intangible How comparable the firm’s tangible and intangible resources are to a competitor’s in terms of both types resources are to a competitor’s in terms of both types and amounts.and amounts.

• Firms with similar types and amounts of Firms with similar types and amounts of resources are likely to: resources are likely to: Have similar strengths and weaknesses.Have similar strengths and weaknesses.

Use similar strategies.Use similar strategies.

• Firms with similar resources are direct and Firms with similar resources are direct and mutually acknowledged competitors.mutually acknowledged competitors.

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The Three Drivers of Competitive The Three Drivers of Competitive BehaviorBehavior

• Awareness isAwareness is the extent to which the extent to which

competitors recognize the competitors recognize the degree of their mutual degree of their mutual interdependence that interdependence that results from: results from: • Market commonalityMarket commonality• Resource similarityResource similarity

AwarenessAwareness

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The Three Drivers of Competitive The Three Drivers of Competitive BehaviorBehavior

• Motivation concernsMotivation concerns the firm’s incentive to take the firm’s incentive to take

actionaction or to respond to a or to respond to a

competitor’s attackcompetitor’s attack and relates to perceived and relates to perceived

gains and lossesgains and losses

AwarenessAwareness

MotivationMotivation

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The Three Drivers of Competitive The Three Drivers of Competitive Behavior Behavior

• Ability relates toAbility relates to each firm’s resourceseach firm’s resources the flexibility these the flexibility these

resources provideresources provide

• Without available Without available resources the firm lacks resources the firm lacks the ability tothe ability to attack a competitorattack a competitor respond to the competitor’s respond to the competitor’s

actionsactions

AwarenessAwareness

MotivationMotivation

AbilityAbility

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Strategic and Tactical ActionsStrategic and Tactical Actions

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

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

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

A market-based move that is taken to fine-tune a A market-based move that is taken to fine-tune 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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Likelihood of Attack

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Factors Affecting Likelihood of AttackFactors Affecting Likelihood of Attack

• First mover: A firm that takes an First mover: A firm that takes an initial competitive action to build or initial competitive action to build or defend its competitive advantages defend its competitive advantages or to improve its market position.or to improve its market position.

• First movers can gain:First movers can gain: The loyalty of customers who may The loyalty of customers who may

become committed to the firm’s become committed to the firm’s goods or services.goods or services.

Market share that can be difficult Market share that can be difficult for competitors to take during for competitors to take during future competitive rivalry.future competitive rivalry.

First-Mover First-Mover IncentivesIncentives

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• Second mover responds to Second mover responds to the first mover’s competitive the first mover’s competitive action, typically through action, typically through imitation:imitation: Studies customers’ reactions to Studies customers’ reactions to

product innovations.product innovations.

Can avoid both the mistakes Can avoid both the mistakes and the huge spending of the and the huge spending of the first-movers.first-movers.

May develop more efficient May develop more efficient processes and technologies.processes and technologies.

First MoverFirst Mover

Second Second MoverMover

IncentivesIncentives

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• Late mover responds to a Late mover responds to a competitive action only after competitive action only after considerable time has elapsed.considerable time has elapsed.

• Any success achieved will be slow Any success achieved will be slow in coming and much less than that in coming and much less than that achieved by first and second achieved by first and second movers.movers.

• Late mover’s competitive action Late mover’s competitive action allows it to earn only average allows it to earn only average returns and delays its returns and delays its understanding of how to create understanding of how to create value for customers.value for customers.



Late MoverLate Mover

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• Small firms are more likely:Small firms are more likely: To launch a wide variety of To launch a wide variety of

competitive actions.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 to Relying on speed and surprise to

defend competitive advantages or defend competitive advantages or develop new ones while engaged in develop new ones while engaged in competitive rivalry.competitive rivalry.

Having the flexibility needed to Having the flexibility needed to launch a greater variety of launch a greater variety of competitive actions.competitive actions.



OrganizationOrganizational Size- al Size- SmallSmall


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• Large firms are likely to initiate Large firms are likely to initiate more strategic actions during a more strategic actions during a given time periodgiven time period

• Large organizations commonly Large organizations commonly have the slack resources required have the slack resources required to launch a larger number of total to launch a larger number of total competitive actionscompetitive actions

• Large organizations are more likely Large organizations are more likely to have more significant market to have more significant market commonality with some commonality with some competitors, making them less likely competitors, making them less likely to initiate an attack. to initiate an attack.



OrganizationOrganizational Size -al Size -LargeLarge


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• Quality exists when the firm’s Quality exists when the firm’s goods or services meet or goods or services meet or exceed customers’ exceed customers’ expectationsexpectations

• Quality dimensions are Quality dimensions are different for services versus different for services versus productsproducts

• Firms with lower quality are Firms with lower quality are less likely to attack their less likely to attack their competitors directlycompetitors directly



QualityQuality


OrganizationOrganizational Sizeal Size

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Likelihood of Response

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Likelihood of ResponseLikelihood of Response

• Responses to a competitor’s action are taken Responses to a competitor’s action are taken when the action:when the action:

Leads to better use of the competitor’s capabilities to Leads to better use of the competitor’s capabilities to gain or produce stronger competitive advantages or gain or produce stronger competitive advantages or an improvement in its market position.an improvement in its market position.

Damages the firm’s ability to use its capabilities to Damages the firm’s ability to use its capabilities to create or maintain an advantage.create or maintain an advantage.

Makes the firm’s market position becomes less Makes the firm’s market position becomes less defensible.defensible.

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Factors Affecting Likelihood of Factors Affecting Likelihood of ResponseResponse• Firms study three other factors to predict how a Firms study three other factors to predict how a

competitor is likely to respond to competitive competitor 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 receive strategic Strategic actions receive strategic responsesresponses Strategic actions elicit fewer total Strategic actions elicit fewer total

competitive responses.competitive responses.

The time needed to implement and The time needed to implement and assess a strategic action delays assess a strategic action delays competitor’s responses.competitor’s responses.

• Tactical responses are taken to Tactical responses are taken to counter the effects of tactical actionscounter the effects of tactical actions A competitor likely will respond quickly A competitor likely will respond quickly

to a tactical actionsto a tactical actions

Type of Type of Competitive Competitive

ActionAction

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• An actor is the firm taking an An actor is the firm taking an action or responseaction or response

• The firm studies responses that a The firm studies responses that a competitor has taken previously competitor has taken previously when attacked to predict likely when attacked to predict likely responses.responses.

• A firm is more likely to respond to A firm is more likely to respond to a competitor if the competitor is a a competitor if the competitor is a market leader and/or has a market leader and/or has a positive reputation in the market.positive reputation in the market.


ActionAction

Actor’s Actor’s ReputationReputation

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• Market dependence is the Market dependence is the extent to which a firm’s extent to which a firm’s revenues or profits are derived revenues or profits are derived from a particular market.from a particular market.

• In general, firms can predict that In general, firms can predict that competitors with high market competitors with high market dependence are likely to dependence are likely to respond strongly to attacks respond strongly to attacks threatening their market threatening their market position.position.


ActionAction

Actor’s Actor’s ReputationReputation

Dependence Dependence on the on the marketmarket

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Competitive Dynamics versus RivalryCompetitive Dynamics versus Rivalry

• Competitive DynamicsCompetitive DynamicsOngoing actions and responses taking place Ongoing actions and responses taking place

between between all firmsall firms competing within a market competing within a market for advantageous positions.for advantageous positions.

• Competitive RivalryCompetitive RivalryOngoing actions and responses taking place Ongoing actions and responses taking place

between between an individual firman individual firm and its and its competitorscompetitors for advantageous market for advantageous market position.position.

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Competitive DynamicsCompetitive Dynamics

• Competitive advantages are Competitive advantages are shielded from imitation for long shielded from imitation for long periods of time and imitation is periods of time and imitation is costly.costly.

• Competitive advantages are Competitive advantages are sustainable in slow-cycle markets.sustainable in slow-cycle markets.

• All firms concentrate on All firms concentrate on competitive actions and competitive actions and responses to protect, maintain responses to protect, maintain and extend proprietary and extend proprietary competitive advantage.competitive advantage.

Slow-Cycle Slow-Cycle MarketsMarkets

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SOURCE: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by taking strategic initiative, Academy of Management Executive, 11(2): 111–118.

Slow-Cycle MarketsSlow-Cycle Markets

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• The firm’s competitive advantages The firm’s competitive advantages aren’t shielded from imitation aren’t shielded from imitation because imitation happens because imitation happens quickly and somewhat quickly and somewhat inexpensivelyinexpensively

• Competitive advantages aren’t Competitive advantages aren’t sustainablesustainable Competitors use reverse Competitors use reverse

engineering to quickly imitate or engineering to quickly imitate or improve on the firm’s productsimprove on the firm’s products

Non-proprietary technology is Non-proprietary technology is diffused rapidlydiffused rapidly


Fast-Cycle Fast-Cycle MarketsMarkets

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Source: Adapted from I. C. MacMillan, 1988, Controlling competitive dynamics by taking strategic initiative, Academy of Management Executive, 11(2): 111–118.

Fast-Cycle MarketsFast-Cycle Markets

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• Moderate cost of imitation may Moderate cost of imitation may shield competitive advantages.shield competitive advantages.

• Competitive advantages are Competitive advantages are partially sustainable if their quality partially sustainable if their quality is continuously upgraded.is continuously upgraded.

• To be successful, firms:To be successful, firms: Seek large market sharesSeek large market shares

Gain customer loyalty through brand Gain customer loyalty through brand namesnames

Carefully control operationsCarefully control operations


Fast-Cycle Fast-Cycle MarketsMarkets

Standard-Standard-Cycle Cycle

MarketsMarkets

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Wrap-up

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Wrap-upWrap-up• Framework for Competitive DynamicsFramework for Competitive Dynamics• Competitive RivalryCompetitive Rivalry

Market Commonality & Resource SimilarityMarket Commonality & Resource Similarity Awareness, Motivation & AbilityAwareness, Motivation & Ability Likelihood of AttackLikelihood of Attack Likelihood of ResponseLikelihood of Response

• Competitive DynamicsCompetitive Dynamics Slow-cycle MarketsSlow-cycle Markets Fast-cycle MarketsFast-cycle Markets Standard-cycle MarketsStandard-cycle Markets

• QuestionsQuestions

Competitive Rivalry & Competitive Dynamics Chapter Five BA 495.009.

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