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Chapter 5 Competitive Rivalry Competitive
Dynamics
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Competitive Strategy
Know yourself, know your opponents encounter a
hundred battles, win a hundred victories. Sun
Tzu, The Art of War, approx. 500 BC

• One firms actions rarely go unnoticed by rivals
• Therefore, firms not only need to know their own
  strengths and weaknesses before acting, but also
  predict the kind of response competitors are
  likely to make
• -gt Competitor analysis

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Rivalrys Effect on Strategy

• Success of a strategy is determined by
• The firms initial competitive actions
• How well it anticipates competitors responses to
  them
• How well the firm anticipates and responds to its
  competitors initial actions
• Competitive rivalry
• Affects all types of strategies
• Has the strongest influence on the firms
  business-level strategy or strategies

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A Model of Competitive Rivalry

• Firms are mutually interdependent
• A firms competitive actions have noticeable
  effects on its competitors
• A firms competitive actions elicit competitive
  responses from its competitors
• Competitors feel each others actions and
  responses
• Marketplace success is a function of both
  individual strategies and the consequences of
  their use!

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Competitive Rivalry vs. Dynamics

• Competitive Rivalry (individual firms)
• Market commonality and resource similarity
• Awareness, motivation, and ability
• First mover advantages and firm size

• Competitive Dynamics(all firms)
• Market speed (slow-cycle, fast-cycle, and
  standard-cycle)
• Effects of market speed on actions and responses
  of all competitors in the market

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A Model of Competitive Rivalry
Source Adapted from Chen, M.-J. (1996)
Competitor analysis and interfirm rivalry
Toward a theoretical integration, Academy of
Management Review, 21 100134.
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Competitor Analysis

• Competitor analysis is used to help a firm
  understand its competitors
• The firm studies competitors future objectives,
  current strategies, assumptions, and capabilities
• With the analysis, a firm is better able to
  predict competitors behaviors when forming its
  competitive actions and responses

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A Model of Competitive Rivalry
Source Adapted from Chen, M.-J. (1996)
Competitor analysis and interfirm rivalry
Toward a theoretical integration, Academy of
Management Review, 21 100134.
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Drivers of Competitive Behavior

• Awareness is
• extent to which competitors recognize degree of
  their mutual interdependence that results from
• Market commonality
• Resource similarity

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Drivers of Competitive Behavior

• Motivation concerns
• the firms incentive to take action
• or to respond to a competitors attack
• and relates to perceived gains and losses

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Drivers of Competitive Behavior

• Ability relates to
• each firms resources
• the flexibility these resources provide
• Without available resources firm lacks ability to
• attack a competitor
• respond to competitors actions

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Drivers of Competitive Behavior

• A firm is more likely to attack a rival with whom
  it has low market commonality than one with whom
  it competes in multiple markets
• Given the high stakes of competition under market
  commonality, there is a high probability that the
  attacked firm will respond to its competitors
  action in effort to protect its position in one
  or more markets

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Drivers of Competitive Behavior

• The greater the resource imbalance between the
  acting firm and competitors or potential
  responders, the greater will be the delay in
  response by the firm with a resource disadvantage
• When facing competitors with greater resources or
  more attractive market positions, firms should
  eventually respond, no matter how challenging the
  response

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A Model of Competitive Rivalry
Source Adapted from Chen, M.-J. (1996)
Competitor analysis and interfirm rivalry
Toward a theoretical integration, Academy of
Management Review, 21 100134.
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Competitive Timing

• First movers allocate funds for
• Product innovation
• Aggressive advertising
• Advanced RD
• First movers can gain
• The loyalty of customers who may become committed
  to firms goods or services
• Market share that can be difficult for
  competitors to take during future competitive
  rivalry

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Likelihood of Attack

• Second mover responds to first movers
  competitive action, typically through imitation
• Studies customers reactions to product
  innovations
• Tries to find mistakes first mover made, and
  avoid them
• Can avoid huge spending of first-movers
• May develop more efficient processes and
  technologies

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Likelihood of Attack

• Late mover responds to competitive action only
  after considerable time has elapsed
• Any success achieved will be slow in coming and
  much less than that achieved by first and second
  movers
• Late movers competitive action allows it to earn
  only average returns and delays its understanding
  of how to create value for customers

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Likelihood of Attack

• Small firms are more likely to
• launch competitive actions
• be quicker in doing so
• Small firms are perceived as
• Nimble, flexible competitors
• Relying on speed and surprise to defend
  competitive advantages or develop new ones
• Having the flexibility needed to launch greater
  variety of competitive actions

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Likelihood of Attack

• Large firms are likely to initiate more
  competitive actions as well as strategic actions
  during given time period
• Large firms commonly have slack resources
  required to launch larger number of total
  competitive actions
• Think and act big and well get smaller. Think
  and act small and well get bigger.(Herb
  Kelleher, Former CEO of Southwest Airlines)

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Factors Affecting Response

• Strategic actions receive strategic responses
• Strategic actions elicit fewer total competitive
  responses
• The time needed to implement and assess strategic
  action delays competitors responses
• Tactical responses are taken to counter the
  effects of tactical actions
• Competitor likely will respond quickly to
  tactical actions

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Factors Affecting Response

• Reputation is positive or negative attribute
  ascribed by one rival to another based on past
  competitive behavior
• Firm studies responses that competitor has taken
  previously when attacked to predict likely
  responses

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Factors Affecting Response

• Market dependence is extent to which firms
  revenues or profits are derived from particular
  market
• In general, firms can predict that competitors
  with high market dependence are likely to respond
  strongly to attacks threatening their market
  position