Competitor Analysis Final

of 20

  • date post

    09-Apr-2018
  • Category

    Documents

  • view

    218
  • download

    0

Embed Size (px)

Transcript of Competitor Analysis Final

  • 8/8/2019 Competitor Analysis Final

    1/20

  • 8/8/2019 Competitor Analysis Final

    2/20

    US market stagnant

    South Korea

    Max. market share =6%

    VLM Corporation alsoconsidering entering

    the market

    FranceRobinet with market

    share = 82%

  • 8/8/2019 Competitor Analysis Final

    3/20

    Elements of Competitor Analysis

    Game

    Theory

    Behavioral Theory

    Analysis Framework

    Data Sources

  • 8/8/2019 Competitor Analysis Final

    4/20

    Game Theory

    Framework for Modeling Competitive decision making.

    Assumptions :

    1. Those playing game have good grasp on game.

    2. All are rational and profit is the only motivation.

    Step 1

    How do I frame the competitive decisionproblem?

    Step 2

    How do I use this framing to predictcompetitive outcomes?

  • 8/8/2019 Competitor Analysis Final

    5/20

    Types of Strategies in Game Theory

    Provides complete definition how a player will play agame.

    Determines the move a player will make for any situation.

    A player's strategy set is the set of pure strategies.

    Purestrategy

    Is an assignment of probability to each pure strategy.

    Since probabilities are continuous, there are infinitelymany mixed strategies available to player, even ifstrategy set finite.

    One can regard a pure strategy as a degenerate case ofa mixed strategy : particular pure strategy selected withprobability 1 and every other strategy with probability 0

    Mixedstrategy

  • 8/8/2019 Competitor Analysis Final

    6/20

    Nash Equilibrium in Game Theory

    Types ofNash Equilibria

    Generally, every game has one Nash equilibrium :outcome in which players have no incentive tounilaterally deviate from their respective choice actions.

    Pure strategy Nashequilibria areNash

    equilibria where all

    players are playing

    pure strategies.

    Mixed strategy

    Nash equilibriaare equilibria

    where at least

    one player is

    playing a mixed

    strategy.

  • 8/8/2019 Competitor Analysis Final

    7/20

    South Korea

    If firm the only entrant : Could sell 200,000 units each year withprevailing market price.

    Fixed costs for WCC (and possibly for VLM and Robinet) : $ 2 Mn

    Variable Cost for WCC : $ 30 per unit

    If both firms enter market : each firm sells 150,000 units

    Price would fall depending on cost structure of VLM.

    Payoffs Calculation for all possible outcomes :

  • 8/8/2019 Competitor Analysis Final

    8/20

    South Korea

    Identical Cost

    If VLMs variable cost same as

    WCC, then price falls to $ 45 from$ 55.

    Implications

    Each player prefers optimal action

    of entering market irrespective ofother players choice i.e., enter-

    enter outcome : Dominant

    Strategy

    One equilibrium : Both entering

    250 , 250 3000 , 0

    0 , 3000 0 , 0

    Enter Dont Enter

    Enter

    DontEnter

    VLM

    WCC

  • 8/8/2019 Competitor Analysis Final

    9/20

    South Korea

    Low Cost Scenario

    VLM unit Cost = $20

    Price under dual entry = $40

    VLM

    Enter Dont Enter

    Enter

    WCC

    Dont

    Enter

    Implications

    WCC doesnt have dominant

    strategy since optimal decisiondepends on other players choice.

    VLM always prefers to enter thus

    enter is dominant strategy for

    VLM.

    One equilibrium : VLM entering

    and WCC not entering

    -500,1000 3000,0

    0,5000 0,0

  • 8/8/2019 Competitor Analysis Final

    10/20

    South Korea

    High Cost Scenario

    VLM unit Cost = $40

    Price under dual entry = $50

    VLM

    Enter Dont Enter

    Enter

    WCC

    Dont

    Enter

    Implications

    VLM does not have dominant

    strategy.

    WCC prefers to enter irrespective

    of other players choice :

    dominant strategy

    One equilibrium : WCC entering

    and VLM not entering

    1000,-500 3000,0

    0,1000 0,0

  • 8/8/2019 Competitor Analysis Final

    11/20

    France

    Cost Structure

    WCC expected to capture 250000

    units if match Robinets price.

    Robinets cost structure assumed to

    be same as WCCs

    Price under accommodation : $45

    Price under price war : $ 35

    Fight Accommodate

    Enter

    Dont

    Enter

    Implications

    Two equilibrium outcomes :neither

    player has incentive to unilaterally

    deviate.

    WCC not moves from dont enter to

    enter if Robinet is fight. Robinet

    doesnt move from accommodate

    to fight if WCC enter.

    -500, 1500 2000,8000

    0,16250 0,16250

  • 8/8/2019 Competitor Analysis Final

    12/20

    Game Tree for France Entry Decision

    Sequential move game rather than simultaneous move game

    in South Korea.

    -500,1500

    Robinet Fight

    Enter

    WCC

    Dont Accommodate 2000,8000

    Enter

    0,16250

  • 8/8/2019 Competitor Analysis Final

    13/20

    Caveats in application of Game Theory

    Game models used static games consisting of a singlemove by each player at single point in time.

    Present scenario is dynamic game involving multiplerelated decisions and interactions over time.

    Should know competitors cost structure and perhapsother factors affecting his decision making e.g. BehavioralBiases.

  • 8/8/2019 Competitor Analysis Final

    14/20

    Behavioral Theory

    Bounded Rationality orInformation Processing

    limitations (owing toscarcity of info ,time,willingness , ability to

    analyze).

    Cognitive frailties such as

    antagonism andemotion.

    Heuristics or rules ofthumb : Tried and tested

    methods but may lead tonon profit making

    situations.

    Game theory : actions based on maximizing payoffs.

    Behavior Theory : Sometimes decisions based on behavioral biases and not

    on financial motives.

    Reasons behind existence of behavioral bias :

  • 8/8/2019 Competitor Analysis Final

    15/20

    Types of behavior biases

    Generalizing situation based on similar past situations.

    Underestimation of error and unreliability in small sample data.

    Robinet might Fight back based on successful pastexperience.

    Detailed review of competitor history required in similarsituations.

    Representativeness BiasRepresentativeness Bias

    Firms overestimate their potential and success likelihood.

    VLM might overestimate its capabilities even if game theorynegates under high cost situation.

    Applicable to Western Connector as well.

    Overconfidence BiasOverconfidence Bias

    Decision maker seeks info that confirms to belief rather thanseeking refuting evidences.

    Have counter-evidence but perceive confirmatory evidence inbetter light.

    Robinet might stick to fight rather than looking for counterexamples.

    Confirmation BiasConfirmation Bias

  • 8/8/2019 Competitor Analysis Final

    16/20

    Decision makers value goods more when they ownthem than when they do not.

    Firms perceive 10% market share loss as moredamaging than 10% market share gain foregone evenwhen financial implications of two situations same.

    Robinet (losing market share) behave moreaggressively than VLM(gaining market share)

    Endowment

    Effect

    Take actions intended to support previous decisions

    which have not turned out well. If Robinet made investements in marketing capacity , it

    would fight to preserve market share to justifyprevious investments.

    Justify pastactions

  • 8/8/2019 Competitor Analysis Final

    17/20

    Analysis Framework

    What drives thecompetitor

    Future goals(at all mgmt levels)

    Assumptions(About itself and Industry)

    What the competitoris currently doing

    Current Strategy(Business is currently competing)

    Capabilities(Strengths and weakness)

  • 8/8/2019 Competitor Analysis Final

    18/20

    Porters Analysis Framework

    Competitors Keyoperating policies

    Analysis will providecompetitors abilityto react to strategicmoves

    Analysis will help toidentify the biasesand blind spots

    Analysis willprovide how likelywill competitor willchange strategyand the Vigor

    Future

    Goals Assumptions

    CurrentStrategy

    Capabilities

  • 8/8/2019 Competitor Analysis Final

    19/20

    Conclusion

    VLM was estimated to have lower costs than Western Connectors, andmight also be willing to incur greater short-term losses

    Larsen steered Western Connector away from South Korea Marketentry recognizing that the game was more like the low cost scenariothan the high-cost

    Robinet did not respond aggressively owning to high cost of fightingand perceived loyalty of its customers

    On the other hand, Western Connector successfully entered FrenchMarket

  • 8/8/2019 Competitor Analysis Final

    20/20

    Conclusion(cont..)

    The most fundamental lesson of competitor analysis is that strategicdecision-making depends critically upon the anticipated actions ofcompetitors

    Successful firms thoroughly evaluate the incentives, biases, and likely-actions of rivals before taking action

    To frame Competitive Decisions

    Identify Behavioral Tendencies

    Research Competitor Attributes

    ANTICPATE competitive actions

    The elements of competitor analysis through WCCs experience provide

    the basic tools necessary