Chapter 6
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This document discusses competitive rivalry and competitive dynamics. It defines key terms and presents a model of competitive rivalry that examines the drivers, actions, responses and outcomes of competition. The model considers factors like awareness, motivation, ability, competitor analysis, and market conditions that affect competitive behaviors and dynamics. Temporary advantages can potentially lead to sustained competitive advantages if firms continuously develop new advantages before old ones erode.
Chapter 6
- 1. Competitive Rivalry and Competitive Dynamics Chapter 6 Š 2006 by Nelson, a division of Thomson Canada Limited. 6-1
- 2. Competitive Rivalry & Competitive Dynamics Knowledge objectives: ⢠Define competitors, competitive rivalry, competitive behaviour, and competitive dynamics. ⢠Describe market community and resource similarity as the building blocks of a competitor analysis. ⢠Explain awareness, motivation, and ability as drivers of competitive behaviour. ⢠Discuss factors affecting the likelihood a competitor will take competitive actions. ⢠Discuss factors affecting the likelihood a competitor will respond to actions taken against it. ⢠Explain competitive dynamics in slow-cycle, fast-cycle, and standard-cycle markets. Š 2006 by Nelson, a division of Thomson Canada Limited. 6-2
- 3. Competitive Dynamics Results from a series of competitive actions and competitive responses among firms competing within a particular industry. Competitive Rivalry Exists when two or more firms jockey with one another in the pursuit of better market position. Š 2006 by Nelson, a division of Thomson Canada Limited. 6-3
- 4. From Competitors to Competitive Dynamics Competitors ⢠To gain an advantageous market position Why? Engage in Competitive ⢠Through competitive rivalry How? behavior - ⢠Competitive actions Creates? ⢠Competitive responses Creates? Competitive Dynamics ⢠Competitive actions and responses taken by all firms competing in a market Š 2006 by Nelson, a division of Thomson Canada Limited. 6-4
- 5. A Model of Competitive Rivalry Drivers of Outcomes Competitive Ability for Behaviour Interfirm Rivalry: Action and Attack & Response Response Competitor Analysis Feedback Š 2006 by Nelson, a division of Thomson Canada Limited. 6-5
- 6. A Model of Competitive Rivalry (1) Drivers of Outcomes Competitive Ability for Behaviour Interfirm Rivalry: Action and Attack & Response Response Awareness Motivation Competitor Analysis Feedback Š 2006 by Nelson, a division of Thomson Canada Limited. 6-6
- 7. Drivers of Competitive Behaviour Drivers of Competitive Behaviour Do managers understand key Awareness characteristics of competitors? Does the firm have appropriate Motivation incentives to attack or respond? Š 2006 by Nelson, a division of Thomson Canada Limited. 6-7 *
- 8. A Model of Interfirm Rivalry (2) Drivers of Outcomes Competitive Ability for Behaviour Interfirm Rivalry: Action and Attack & Response Response Awareness Motivation Competitor Analysis Market Commonality Resource Similarity Feedback Š 2006 by Nelson, a division of Thomson Canada Limited. 6-8
- 9. Competitor Analysis The first step the firm takes to be able to predict the extent and nature of itâs rivalry with each competitor. Š 2006 by Nelson, a division of Thomson Canada Limited. 6-9
- 10. Competitor Analysis ⢠Market Commonality The number of markets with which the firm and a competitor are jointly involved and the degree of importance of each market. ⢠Resource Similarity The extent to which the firmâs tangible & intangible resources are comparable to a competitors in terms of both type & amount. Š 2006 by Nelson, a division of Thomson Canada Limited. 6-10
- 11. Competitor Analysis Competitor Analysis Market Do firms compete with each Commonality other in multiple markets? Multipoint competition tends to reduce competitive interactions, but increases likelihood of response where interaction occurs. For example, airlines price flights similarly, but respond quickly when competitors introduce promotional prices. Š 2006 by Nelson, a division of Thomson Canada Limited. 6-11 * *
- 12. Competitor Analysis Competitor Analysis Market Do firms compete with each Commonality other in multiple markets? Resource Do competitors possess similar Similarity types or amounts of resources? Š 2006 by Nelson, a division of Thomson Canada Limited. 6-12 * *
- 13. A Model of Interfirm Rivalry (3) Drivers of Outcomes Competitive Ability for Behaviour Interfirm Rivalry: Action and Attack & Response Response Awareness Motivation Likelihood of Attack First Mover Incentives Likelihood of Response Competitor Competitive Action Type Analysis Actorâs Reputation Market Dependence on Market Commonality Resource Availability Resource Similarity Feedback Š 2006 by Nelson, a division of Thomson Canada Limited. 6-13
- 14. Factors Affecting Likelihood of Attack: First Mover Incentives First mover ⢠First movers allocate funds for incentives â product innovation and development â aggressive advertising â advanced research and development ⢠First movers can gain â the loyalty of customers who may become committed to the firmâs goods or services â market share that can be difficult for competitors to take during future competitive rivalry Š 2006 by Nelson, a division of Thomson Canada Limited. 6-14
- 15. Factors Affecting Likelihood of Attack: Size First mover ⢠Small firms are more likely incentives â to launch competitive actions â to be quicker in doing so. Size ⢠Small firms are perceived as â nimble and flexible competitors â relying on speed and surprise to defend their competitive advantages or develop new ones while engaged in competitive rivalry. ⢠Small firms have the flexibility needed to launch a greater variety of competitive actions. Š 2006 by Nelson, a division of Thomson Canada Limited. 6-15
- 16. Factors Affecting Likelihood of Attack: Size First mover ⢠Large firms are likely to initiate more incentives competitive actions as well as strategic actions during a given time period. Size ⢠Large organizations commonly have the slack resources required to launch a larger number of total competitive actions. âThink and act big and weâll get smaller. Think and act small and weâll get bigger.â - Herb Kelleher, Former CEO, Southwest Airlines Š 2006 by Nelson, a division of Thomson Canada Limited. 6-16
- 17. Factors Affecting Likelihood of Attack: Quality First mover ⢠Quality exists when the firmâs goods or incentives services meet or exceed customersâ expectations. Size ⢠Product quality dimensions include: â Performance Quality â Features â Flexibility â Durability â Conformance â Serviceability â Aesthetics â Perceived quality Š 2006 by Nelson, a division of Thomson Canada Limited. 6-17
- 18. Factors Affecting Likelihood of Attack: Quality First mover ⢠Quality exists when the firmâs goods or incentives services meet or exceed customersâ expectations. Size ⢠Service quality dimensions include: â Timeliness â Courtesy Quality â Consistency â Convenience â Completeness â Accuracy Š 2006 by Nelson, a division of Thomson Canada Limited. 6-18
- 19. Quality Dimensions of Goods & Services Product Quality Dimensions: Performance Operating characteristics Features Important special characteristics Flexibility Meeting operating specifications over time Durability Amount of use before performance declines Conformance Match with pre-established standards Serviceability Ease and speed of repair or normal service Aesthetics How a product looks and feels Perceived Subjective assessment of characteristics quality (product image) Š 2006 by Nelson, a division of Thomson Canada Limited. 6-19
- 20. Quality Dimensions of Goods & Services Service Quality Dimensions: Timeliness Performed in promised period of time Courtesy Performed cheerfully Consistency Giving all customers similar experiences Convenience Accessibility to customers Completeness Fully serviced, as required Accuracy Performed correctly each time Š 2006 by Nelson, a division of Thomson Canada Limited. 6-20
- 21. Factors Affecting Likelihood of Response ⢠Firms study three factors to predict how a competitor is likely to respond to competitive actions: - type of competitive action - reputation - market dependence Š 2006 by Nelson, a division of Thomson Canada Limited. 6-21
- 22. Competition ⢠Competitive Dynamics â competitive dynamics concerns the ongoing actions and responses taking place among all firms competing within a market for advantageous positions ⢠Competitive Rivalry â building and sustaining competitive advantages are at the core of competitive rivalry â competitive advantages are the link to an advantageous market position Š 2006 by Nelson, a division of Thomson Canada Limited. 6-22
- 23. Factors Affecting Likelihood of Response: Type of Competitive Action Type of ⢠Strategic actions receive strategic competitive responses action ⢠Tactical responses are taken to counter the effects of tactical actions ⢠Strategic actions elicit fewer total competitive responses ⢠A competitor likely will respond quickly to a tactical action ⢠The time needed to implement and assess a strategic action delays competitorsâ responses Š 2006 by Nelson, a division of Thomson Canada Limited. 6-23
- 24. Factors Affecting Likelihood of Response: Reputation Type of ⢠An actor is the firm taking an action or competitive response action ⢠Reputation is the positive or negative attribute ascribed by one rival to another Reputation based on past competitive behavior ⢠The firm studies responses that a competitor has taken previously when attacked to predict likely responses Š 2006 by Nelson, a division of Thomson Canada Limited. 6-24
- 25. Factors Affecting Likelihood of Response: Market Dependence Type of ⢠Market dependence is: competitive â the extent to which a firmâs revenues action or profits are derived from a particular market. Reputation ⢠In general, firms can predict that competitors with high market Market dependence are likely to respond dependence strongly to attacks threatening their market position. Š 2006 by Nelson, a division of Thomson Canada Limited. 6-25
- 26. Model of Interfirm Rivalry: Outcomes Outcomes Competitive Market Types Slow, Standard, Fast Cycle Slow, Standard, Fast, Cycle Slow cycle markets are frequently shielded by monopoly power or very strong brand loyalties. This market outcome & lack of interfirm rivalry may lead to sustained competitive advantage. Š 2006 by Nelson, a division of Thomson Canada Limited. 6-26 * *
- 27. Model of Interfirm Rivalry: Outcomes Outcomes Standard cycle markets Competitive Market Types often lead to highly Slow, Standard, Fast Cycle Slow, Standard, Fast Cycle competitive pressures despite world class products. Firms with multi-market competition may dampen rivalry somewhat. Sustained competitive advantage is a possible outcome in this instance. Š 2006 by Nelson, a division of Thomson Canada Limited. 6-27
- 28. Model of Interfirm Rivalry: Outcomes Outcomes Competitive Market Types Fast cycle markets are intensely dynamic and a Slow, Standard, Fast Cycle Fast Cycle 1st mover advantage is often unsustainable. Firms may cannibalize older generation product while introducing new innovative premium ones. Sustainable competitive advantage is unlikely. Š 2006 by Nelson, a division of Thomson Canada Limited. 6-28
- 29. Model of Interfirm Rivalry: Outcomes Outcomes Competitive Market Types Slow, Standard, Fast Cycle Competitive Outcomes Sustained Competitive Advantage Temporary Advantage Š 2006 by Nelson, a division of Thomson Canada Limited. 6-29 * *
- 30. Competitive Advantage Which Eventually Erodes Returns from a Competitive Exploitation Advantage Counterattack Launch Time (years) 5 Š 2006 by Nelson, a division of Thomson Canada Limited. 6-30
- 31. Obtaining Temporary Advantages to Create Returns Sustained Advantage from a Competitive Advantage Exploitation Counterattack Launch 5 10 15 Time (years) Š 2006 by Nelson, a division of Thomson Canada Limited. 6-31
- 32. Obtaining Temporary Advantages to Create Sustained Advantage Returns from a Sustained Firm has already Competitive moved on to Advantage Advantage No. 2 Exploitation Counterattack Launch 5 10 15 Time (years) Š 2006 by Nelson, a division of Thomson Canada Limited. 6-32
- 33. Obtaining Temporary Advantages to Create Sustained Advantage Returns from a Sustained Firm continues to Competitive move on to the next Advantage Advantage Exploitation Counterattack Launch 5 10 15 Time (years) Š 2006 by Nelson, a division of Thomson Canada Limited. 6-33