Chapter 5 - STRATEGY
COMPETITIVE RIVARLY AND COMPETITIVE DYNAMICS
Competitors = firms operating in the same market, offering similar products and
targeting similar customers
Competitive rivalry = the ongoing set of competitive actions and responses that
occur among firms they manoeuvre for an advantageous market position
Competitive behaviour = the set of competitive actions and responses a firms
takes to build or defend its competitive advantages and to improve its market
position
Multimarket competition = when firms compete against each other in several
products or geographic markets
Competitive dynamics = the total set of competitive actions and responses
taken by all firms competing in a market
– Firms do not compete in a vacuum; firm’s actions are part of a set of
competitive actions and responses taking place among a host of
companies seeking the same objective - establishing a desirable
market position of having superior performance relative to competitors
– Every decision a firm makes about their interactions with competitors
affects their ability to earn above-average returns
– A strategy’s success is a function of the firm’s initial competitive
actions, how well it anticipates competitors’ responses to them and
how well the firm anticipates and responds to its competitors’ initial
actions. If a firm is good at predicting competitors actions and
responses, it can have a better market position and financial
performance
– Competitive rivalry mainly influences business-level strategies
– Firms are mutually interdependent and competitors’ actions and
responses affect them
– Executives recognise that competitive rivalry can have a major effect
on a firm’s financial performance and market position (intensified
rivalry can decrease average profitability)
COMPETITOR ANALYSIS
-> the first step a firm takes to predict the extent and nature of its rivalry with
each competitor
When performing competitor analysis, a firm analyses each of its competitors
market commodity and resource similarity
– Lacking information needed to predict conditions of competitors
creates competitive blind spots, leading to the firm getting caught of
guard by competitors’ actions, potentially resulting to negative
outcomes
, 1
Two dimensions of competition determining the extend to which firms are
competitors:
. Market commonality = the number of markets in which firms compete
against each other (within an industry?)
– Every industry is composed of various markets
– Firms usually further subdivide a market into more segments to
concentrate on different, unique customer groups (e.g. the
insurance market can be broken down into market segments, like
commercial and consumer, product segments like healthy or life
insurance, geographic segments like Southeast Asia and Western
Europe)
– A firm may decide to initiate competitive actions or responses in
one market with desire to affect the outcome of its rivalry with a
particular competitor in a second market. This complicates the
rivalry between competitors
– Research suggest that a firm with greater multimarket contact is
less likely to initiate an attack, but more likely to respond
aggressively when attacked
– Thus, in general, multimarket competition reduces competitive
rivalry
. Resource similarity = the similarity in the competing firms’ resource
portfolio
– Firms will similar types and amounts of resources tend to have
similar strengths and weaknesses
If these two are high between firms then they are direct and acknowledged
competitors
The type of relationship competitors have can change over time
DRIVERS OF COMPETITIVE BEHAVIOUR
Market commonality and resource similarity can influence the drivers
. Awareness
– The extend to which competitors recognise the degree of their
mutual interdependence that results from market commonality and
resource similarity
– A prerequisite to any competitive action or response taken by a
firm
– Refers to the extend to which a firm can understand the
consequences of its competitive actions and responses
– Greatest when resources are similar in order to use that when
competing against each other in multiple markets
. Motivation
– Perceived gains or losses
– Concerns a firm’s incentive to take action or to respond to a
COMPETITIVE RIVARLY AND COMPETITIVE DYNAMICS
Competitors = firms operating in the same market, offering similar products and
targeting similar customers
Competitive rivalry = the ongoing set of competitive actions and responses that
occur among firms they manoeuvre for an advantageous market position
Competitive behaviour = the set of competitive actions and responses a firms
takes to build or defend its competitive advantages and to improve its market
position
Multimarket competition = when firms compete against each other in several
products or geographic markets
Competitive dynamics = the total set of competitive actions and responses
taken by all firms competing in a market
– Firms do not compete in a vacuum; firm’s actions are part of a set of
competitive actions and responses taking place among a host of
companies seeking the same objective - establishing a desirable
market position of having superior performance relative to competitors
– Every decision a firm makes about their interactions with competitors
affects their ability to earn above-average returns
– A strategy’s success is a function of the firm’s initial competitive
actions, how well it anticipates competitors’ responses to them and
how well the firm anticipates and responds to its competitors’ initial
actions. If a firm is good at predicting competitors actions and
responses, it can have a better market position and financial
performance
– Competitive rivalry mainly influences business-level strategies
– Firms are mutually interdependent and competitors’ actions and
responses affect them
– Executives recognise that competitive rivalry can have a major effect
on a firm’s financial performance and market position (intensified
rivalry can decrease average profitability)
COMPETITOR ANALYSIS
-> the first step a firm takes to predict the extent and nature of its rivalry with
each competitor
When performing competitor analysis, a firm analyses each of its competitors
market commodity and resource similarity
– Lacking information needed to predict conditions of competitors
creates competitive blind spots, leading to the firm getting caught of
guard by competitors’ actions, potentially resulting to negative
outcomes
, 1
Two dimensions of competition determining the extend to which firms are
competitors:
. Market commonality = the number of markets in which firms compete
against each other (within an industry?)
– Every industry is composed of various markets
– Firms usually further subdivide a market into more segments to
concentrate on different, unique customer groups (e.g. the
insurance market can be broken down into market segments, like
commercial and consumer, product segments like healthy or life
insurance, geographic segments like Southeast Asia and Western
Europe)
– A firm may decide to initiate competitive actions or responses in
one market with desire to affect the outcome of its rivalry with a
particular competitor in a second market. This complicates the
rivalry between competitors
– Research suggest that a firm with greater multimarket contact is
less likely to initiate an attack, but more likely to respond
aggressively when attacked
– Thus, in general, multimarket competition reduces competitive
rivalry
. Resource similarity = the similarity in the competing firms’ resource
portfolio
– Firms will similar types and amounts of resources tend to have
similar strengths and weaknesses
If these two are high between firms then they are direct and acknowledged
competitors
The type of relationship competitors have can change over time
DRIVERS OF COMPETITIVE BEHAVIOUR
Market commonality and resource similarity can influence the drivers
. Awareness
– The extend to which competitors recognise the degree of their
mutual interdependence that results from market commonality and
resource similarity
– A prerequisite to any competitive action or response taken by a
firm
– Refers to the extend to which a firm can understand the
consequences of its competitive actions and responses
– Greatest when resources are similar in order to use that when
competing against each other in multiple markets
. Motivation
– Perceived gains or losses
– Concerns a firm’s incentive to take action or to respond to a
