BUS 478 Strategy
Chapter 5
Competitive Rivalry and Competitive Dynamics
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COMPETITIVE
COMPETITORS RIVALRY
Firms operating in the same The ongoing set of competitive
market, offering similar actions and competitive
products, and targeting similar responses that occur among
customers. firms as they maneuver for an
advantageous market position.
• The outcomes of competitive rivalry
influence the firm’s:
ü Ability to develop and then
sustain its competitive
advantages
ü Level (average, below average,
or above average) of financial
returns
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COMPETITIVE COMPETITIVE
BEHAVIOR DYNAMICS
The set of competitive The total set of competitive
actions and responses a firm actions and responses taken
takes to build or defend its by all firms competing within a
competitive advantages and market.
to improve its market position.
• Multimarket competition occurs when
firms compete against each other in
several product or geographic markets.
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A Model of Competitive Rivalry
Competitive rivalry evolves from the pattern of actions and
responses as one firm’s competitive actions have noticeable
effects on competitors, eliciting competitive responses from them.
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Competitor Analysis
• The first step the firm takes to be able to predict its
competitors’ actions and responses.
• Competitor analysis is a technique firms use to understand
their competitive environment by studying competitors’:
ü Future objectives
ü Current strategies
ü Assumptions
ü Capabilities
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Competitor Analysis
In general, the greater the market commonality and resource
similarity, the more firms acknowledge that they are direct
competitors.
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Market Commonality
• Market commonality is concerned with the number of
markets with which the firm and a competitor are jointly
involved and the degree of importance of the individual
markets to each.
• Firms competing against one another in several markets
engage in multimarket competition.
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Resource Similarity
• Resource similarity is the extent to which the firm’s tangible
and intangible resources compare favorably to a competitor’s
in terms of type and amount.
• Firms with similar types and amounts of resources tend to:
ü Have similar strengths and weaknesses
ü Use similar strategies in light of their strengths to pursue
what may be similar opportunities in the external
environment
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Drivers of Competitive Behavior
Market commonality and resource similarity shape the firm’s:
Awareness Motivation Ability
Refers to the extent concerns the firm’s refers to the quality of
to which competitors incentive to take the resources
recognize the degree action or to respond available to the firm
of their mutual to a competitor’s to attack and
interdependence. attack. respond.
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Drivers of Competitive Behavior
• Resource dissimilarity also influences the competitive
actions and responses firms choose to take.
• The more significant the difference between resources, the
longer is the delay by the firm with a resource
disadvantage.
• Even when facing competitors with greater resources or
more attractive market positions, firms should eventually
respond, no matter how daunting the task seems.
• Choosing not to respond can ultimately result in failure.
Perrier Group to protect its key
bottled water brands was delayed
due to resource dissimilarity 1-10
Competitive Rivalry
The ongoing set of competitive actions and responses occurring
between competing firms for an advantageous market position.
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Strategic and Tactical Actions
• A competitive action is a strategic or tactical action the firm takes to
build or defend its competitive advantages or improve its market position.
• A competitive response is a strategic or tactical action the firm takes to
counter the effects of a competitor’s competitive action.
• A strategic action or a strategic response is a market-based move that
involves a significant commitment of organizational resources and is
difficult to implement and reverse.
• A tactical action or a tactical response is a market-based move that is
taken to fine-tune a strategy; it involves fewer resources and is relatively
easy to implement and reverse. (ex. pricing decisions are often taken to
increase demand in certain markets during certain periods.)
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Likelihood of Attack
In addition to market commonality, resource similarity, and the drivers of
awareness, motivation, and ability, three more specific factors affect the
likelihood a competitor will take competitive actions:
1. First-mover benefits
2. Organizational size
3. Quality
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First-Mover Benefits
• A first mover is a firm that takes an initial competitive action to
build or defend its competitive advantages or to improve its market
position.
• First movers emphasize research and development (R&D) as a
path to developing innovative products that customers will value.
• First-mover benefits are often critical to a firm’s success in
industries:
ü Experiencing rapid technological developments
ü With relatively short product life cycles
• In addition to earning above-average returns until its competitors
respond to its successful competitive action, the first mover can
gain:
ü The loyalty of customers
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ü Market share
First-Mover Benefits
• First movers tend to:
ü Be aggressive
ü Be willing to experiment with innovation
ü Take higher yet reasonable levels of risk
• To be a first mover, the firm must have the readily
available resources to:
ü Invest significantly in R&D
ü Rapidly and successfully produce and market a
stream of innovative products
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Second Movers
• A second mover is a firm that responds to the first mover’s
competitive action, typically through imitation.
• The second mover:
• Studies customers’ reactions to product innovations
• Tries to find any mistakes the first mover made so that it can
avoid them and the problems they created
• Has the time to develop processes and technologies that:
• Are more efficient than those the first mover used
• Create additional value for consumers
• The most successful second movers can interpret market feedback
with precision in order to respond quickly yet successfully to first
movers’ successful innovations.
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Late Movers
• A late mover is a firm that responds to a competitive action a
significant amount of time after the first mover’s action and the
second mover’s response.
• Late movers:
ü Achieve considerably less success than do first and second
movers
ü Require considerable time to understand how to create at least
as much customer value as that offered by the first and second
movers’ products
ü Thus, late movers typically only earn average returns.
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• An antiperspirant/deodorant for women • Dove Ultimate Antiperspirant offers
manufactured by Procter & Gamble. hydrating care for the underarms
• Secret was launched as the first female similar to what facial skincare
deodorant in 1956 provides
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• In 2008 Tesla Motors released its first
car, the completely electric Roadster
• Rivian is building an electric sport utility
vehicle and pickup truck
• 100,000 vehicles for Amazon by 2030
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Uber’s First-Mover Advantage in Mobile
Ride-Hailing Services
• Which first-mover advantages contributed to
Uber’s domination of the on-demand
transportation markets in its chosen cities?
• What first-mover advantages will Uber not have
in entering overseas markets?
• How could Uber extend its success into smaller
and less urban markets as user growth in the
larger urban markets peaks?
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Organizational Size
• An organization’s size affects the likelihood it will take competitive
actions as well as the types and timing of those actions.
• Small firms:
ü Are more likely to launch competitive actions
ü Tend to launch competitive actions more quickly
ü Have the capacity to be nimble and flexible competitors
ü Tend to rely on speed and surprise to defend their
competitive advantages
ü Develop variety in their competitive actions
• Large firms typically have a greater amount of slack resources
that allows them to initiate a larger total number of competitive
actions and strategic actions during a given period.
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Quality
• Quality exists when the firm’s products meet or exceed customers’
expectations.
• Customers:
ü Perceive quality as doing the right things relative to performance
measures that are important to them
ü Measure the quality of products against a broad range of
dimensions
ü Will not buy a product or use a service until they believe it can
satisfy at least their base-level expectations in terms of quality
dimensions that are important to them
• Quality is a base denominator for:
ü Competing successfully in the global economy
ü Achieving competitive parity, at a minimum
• Quality is a necessary but insufficient condition for achieving an
advantage. 1-23
Quality Dimensions of Products and
Services
Product Quality Dimensions
1. Performance—Operating characteristics
2. Features—Important special characteristics
3. Flexibility—Meeting operating specifications over some period of time
4. Durability—Amount of use before performance deteriorates
5. Conformance—Match with pre-established standards
6. Serviceability—Ease and speed of repair
7. Aesthetics—How a product looks and feels
8. Perceived quality—Subjective assessment of characteristics (product
image)
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Quality Dimensions of Products and
Services
Service Quality Dimensions
1. Timeliness—Performed in the promised period of time
2. Courtesy—Performed cheerfully
3. Consistency—Giving all customers similar experiences each time
4. Convenience—Accessibility to customers
5. Completeness—Fully serviced, as required
6. Accuracy—Performed correctly each time
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Likelihood of Response
• In general, a firm is likely to respond to a competitor’s action when
either:
ü The action leads to better use of the competitor’s capabilities to
develop a stronger competitive advantage or an improvement in its
market position.
ü The action damages the firm’s ability to use its core competencies
to create or maintain an advantage.
ü The firm’s market position becomes harder to defend.
In addition to market commonality, resource similarity, and awareness,
motivation, and ability, firms evaluate three other factors to predict how a
competitor is likely to respond to competitive actions:
• Type of competitive action
• Actor’s reputation
• Market dependence
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