CHAPTER 5
THE DYNAMICS OF COMPETITIVE RIVALRY
Objectives
After this lesson, you should be able to:
1. Understand the importance of competitive dynamics.
2. Explain the importance of the global market and its competitive advantage.
3. Develop tactical actions to address competitive rivalry.
4. Enumerate the factors that influence the likelihood of rivalry attacks.
5. Recognize the importance of product quality as a strategy for competitiveness.
6. Identify the different dynamics of rivals’ response actions.
Introduction
A firm’s environment is never free from competitors, especially when similar products or
services are offered. Competition benefits customers but also forces firms to become aware of
their position in the industry, motivating them to create better products and innovate
continuously.
Competitive dynamics refers to the ongoing cycle of actions and responses as firms compete
to satisfy customer needs. Companies challenge rivals to gain greater market share and sustain
their advantage. This process develops the firm’s competencies, strengthens its market position,
and enhances profitability.
Competitive Dynamics
Competitive dynamics encompasses the total set of actions and responses among all
competitors within a market niche.
Firms cannot afford to remain passive; they must respond to changing environments.
Multiple-market competition occurs when firms compete in several product categories or
geographic regions.
Example: Smart vs. Globe in the Philippines, where both compete through promotions,
incentives, and diversified services.
Another example: Kwarta Padala services offered by pawnshops nationwide, which
replaced traditional postal and banking money transfers through speed and
convenience.
Sustained success depends on constant innovation and strategic action. Competitors will
always seek opportunities to challenge the market leader.
The Dynamics of Global Competition
Global rivalry continues to intensify due to globalization. Firms expand into highly populated
regions, triggering price wars and battles over brand loyalty.
In Electronics industry, brands like Samsung, Huawei, Apple, Oppo, and Vivo compete
fiercely in features, price, and innovation.
In Automobile industry, Honda, Toyota, Mitsubishi, Ford, and Hyundai attract buyers with
innovative features, financing options, and affordable models.
Its Impact on developing countries is to remain competitive, they must attract foreign
investments, improve infrastructure (roads, ports, transport facilities), and maintain
transparent governance.
The Model of Competitive Strategy
Competitive rivalry evolves from the patterns of actions and responses among firms. Each
action affects competitors and prompts reactions.
Factors affecting market rivalry include:
1. Total Number of competitors – More competitors mean higher rivalry.
Example: The smartphone industry (Samsung, Apple, Xiaomi, Huawei, OPPO, Vivo). Since
there are many players, competition is very intense, leading to frequent product launches and
price wars.
2. The Market characteristics – Firms engaged in multiple markets face broader
competition.
Example: Jollibee vs. McDonald’s. They don’t just compete in the Philippines but also in
international markets like the U.S. and Middle East, making the rivalry broader and more
complex.
3. The Quality and extent of individual firm’s strategies – Firms with similar resources
and capabilities often employ similar strategies, increasing rivalry.
Example: Pepsi and Coca-Cola. Both companies have similar resources and marketing
capabilities, so they use nearly identical strategies (celebrity endorsements, sponsorships,
aggressive advertising), which heightens their rivalry.
Strategic Response to Competitor’s Action
Firms must stay vigilant, as competitors continuously attempt to catch up or surpass market
leaders.
Factors influencing strategic responses:
1. Corporate awareness to competition– Understanding the degree of interdependence
with competitors.
Example: In the airline industry, Cebu Pacific is aware that lowering ticket prices will
likely trigger Philippine Airlines and AirAsia to respond with promos too.
2. Motivation to respond to competition– Determining whether engaging in rivalry will
improve performance.
Example: When Shopee introduced free shipping and cashback, Lazada was motivated
to respond with similar promotions to avoid losing its market share.
3. Ability in terms of Resources and technology – Ensuring sufficient resources and
technology to respond effectively.
Example: When Samsung launches a new smartphone model, smaller local brands may
not respond immediately because they lack the R&D and financial resources Samsung
has.
4. Dissimilarity of Resources and operational capability – Larger imbalances in
resources may delay competitive responses.
Example: A startup coffee shop may not immediately respond to Starbucks’ price cuts or
new product launches because of the big gap in brand power, distribution, and financial
strength.
Tactical Actions to Competitive Rivalry
Tactical responses are short-term, market-based strategies designed to counter rivals.
Example: Cebu Pacific’s early-bird promo fares allow the airline to maximize seat sales
during lean travel seasons.
These actions are less resource-intensive but effective in maintaining competitive
advantage.
Factors that Influence the Likelihood Rival’s Attacks
Rival attacks occur in every industry, driven by resource similarity, awareness, motivation, and
capabilities
Key Strategies
1. Pioneering Incentive Strategies
o Pioneer or First Mover Strategy - Firms that innovate early gain customer
loyalty and brand dominance.
Example: Netflix was the pioneer in online streaming, building customer loyalty and
brand dominance before rivals entered.
o Imitator or Second Mover Strategy - Competitors imitate, improve, and
reintroduce products at lower cost or with enhanced features.
Example: Disney+ followed later, but improved by offering exclusive content (Marvel,
Star Wars, Pixar), attracting a massive subscriber base.
Advantages of Imitators or second movers:
Avoid the problems and mistakes of the pioneer or first mover
Develop technologies and efficiency that are more superior
Create products that create value
2. Organizational Size Strategies
o Large firms: Often slower to respond due to bureaucracy.
Example: Microsoft often responds more slowly to trends (like the rise of mobile
apps) due to its size and complex structure.
o Small firms: More flexible, innovative, and able to act quickly with lower
overhead costs.
Example: Zoom quickly adapted during the pandemic, beating larger firms like
Skype and Cisco Webex because it was more flexible and innovative.
The competitive strategies of smaller firms against its big rivals:
Lower investment cost in research and development
Lower fixed and overhead expenses
Technology and resource base through imitation
Quicker and flexibility in action and response
Lower product price with new features.
3. Product Quality Strategies
o Quality is the cornerstone of competitiveness.
Dimensions of quality: performance, features, flexibility, conformance, durability,
aesthetics, and serviceability.
Example: Sony in the electronics industry emphasizes product quality in
performance (high-resolution TVs), features (innovative PlayStation consoles),
durability (long-lasting devices), and aesthetics (sleek designs).
o Total Quality Management (TQM) emphasizes continuous improvement,
customer satisfaction, and workforce commitment.
Example: Toyota applies Total Quality Management (TQM) by continuously
improving manufacturing processes, ensuring customer satisfaction, and
engaging employees in quality initiatives.
Customer’s Perception of Quality Products:
a) Performance – it refers to its operating characteristics (Dyson vacuum cleaners are
known for powerful suction and consistent cleaning performance).
b) Product Features – it refers to important special characteristics. (Samsung Galaxy
smartphones offer unique features like foldable screens and advanced cameras).
c) Flexibility – it refers to meeting operating specifications over some period in time.
(Microsoft Office 365 adapts to different devices (PC, tablet, mobile) and updates
regularly to meet user needs).
d) Conformance – it refers to matching the pre-established standards. (Toyota cars
consistently meet international safety and emission standards).
e) Durability – it refers to the amount of use before it deteriorates. (Timberland boots are
known for lasting years, even in tough conditions).
f) Aesthetics – it refers to how the product looks and feels in the use of the user. (Apple
MacBook is admired for its sleek, minimalist, and premium design).
g) Serviceability – ease and speed of repair when it broke down. (Canon printers provide
accessible service centers and quick repair/replacement of parts).
The Dynamics of Rival’s Responses
Competitors typically respond more strongly to actions taken by market leaders. The likelihood
of a response depends on:
1. The degree to which firms are competitors
Example: Coca-Cola and Pepsi respond strongly to each other’s pricing, advertising, and
product launches because they directly compete in the same beverage market.
2. The drivers of competitive behavior
Example: Grab and Angkas in the Philippines are both driven by market share and
customer loyalty, so when Grab offers discounts, Angkas responds with its own promos
to retain riders.
3. The likelihood of attack or counter-attack
Example: When Nike launched sustainable shoe lines, Adidas countered by releasing its
own eco-friendly footwear, showing how likely rivals are to attack or respond to maintain
competitiveness.
Building and sustaining competitive advantage is central to rivalry, but no advantage is
permanent. Firms must continuously innovate to stay relevant in the market.