CHAPTER 5
THE DYNAMICS OF COMPETITIVE RIVALRY
Objectives
Understand the importance of competitive dynamics
Know the importance of the global market and its competitive advantage
Develop tactical actions to competitive rivalry
Enumerate the factors that influence the likelihood of rivalry attack
Give the importance of product quality as strategy for competitiveness
Enumerate the different dynamics of rival's response actions
WHAT IS COMPETITIVE RIVALRY?
The firm's environment is devoid of competitors if they are offering similar
products or services. While competition serves the purpose of the customers, it also
makes the firm aware of their position in the industry that makes them strive to create
better products and develop new ones through innovations.
Competitive behavior is developed when the firm responds positively to
competition. It is the tendency to outclass the other firm by improving their production
system, materials quality and distribution to customers at the lowest cost possible.
COMPETITIVE DYNAMICS
Competitive Dynamics is the firm’s total set of actions and responses to all
competitors within the market niche. Competitive dynamics makes the firm alert in the
developing scenario in the industrial world, that they could not just fold their arms
watching the changing environment.
Example of this is the competition between Smart and Globe that provides
different products and services to cellular phone users in and outside the country. They
provide a lot of incentives and promotions to get the greater share of the market and get
better return on their investments.
THE DYNAMICS OF GlOBAL COMPETITION
The global economic rivalry is intensifying, Globalization is the target of most firm
as the market expansions in the direction of populated countries of the world. The price
war is on, and companies will tend to compete in lower priced products with acceptable
quality.
In electronics, brands like Samsung, Huawei, Apple, Oppo, and Vivo compete on
features and prices. Lesser-known brands target budget-conscious consumers.
THE MODEL OF COMPETITIVE STRATEGY
To stay in the competitive market, firms must develop strategies and actions that
should outperform other firms in the same industry.
The intensity of market rivalry is affected by the following:
Total numbers of competitors
It is an analysis of the competitors who are offering the same product, same
market and the same marketing environment. Firms of this nature are clearly
acknowledged as direct competitors and will influence the intensity of rivalry and
competition in the market.
The market characteristics
The market characteristics is concerned with the number of markets with which
the firm and its competitors are jointly involved and the degree of its importance to both
firms. Example of these firms in the food industry are Jollibee and McDonalds.
The intensity of market rivalry is affected by the following:
The quality and extent of individual firm’s strategies
In the analysis of the competitors, strategy of firms must be able to identify its
tangible and intangible resources and that of the competitors. Firms with similar
resources and capabilities are more likely to have the same strength and weaknesses
and therefore use similar strategies.
STRATEGIC RESPONSE TO COMPETITOR'S ACTION
Factors that influence strategic response
1. Corporate awareness to competition
This refers to the extent to which competitors recognize the degree of their
mutual interdependence in terms of market commonality and resource similarity.
The lack of corporate awareness can lead to excessive competition that will result
in negative effect on all competitors' performance.
2. Motivation to respond to competition
It refers to the corporate incentive to act or respond to the competitors
attack to perceive gains and losses. The firm may be aware of the competitor's
actions but may not be motivated to engage in rivalry if they perceive that their
industrial position will not improve, or the rival's action would not affect their
performance in the market
3. Ability in terms of resources and technology
While the firm may be aware of the competitor's attack and be motivated
to respond rival's action, they must also consider the availability of their
resources and technology at hand to enter the market competition.
Another factor that must be considered is the technology that is available
to the firm's disposal in order to compete positively to rival's attach.
4. Dissimilarity of resources and operational capability
It refers to the competitive action and response between firms in that the
greater the resources imbalance between the actors of competition or
respondent competitors, the greater is the delay in response.
System and procedure applied in the operation are not easily available to
rival firms and their competencies and capabilities are entirely not the same.
TACTICAL ACTIONS TO COMPETITIVE RIVALRY
The form's market position must be maintained at profitable level and must
depend its competitive advantage through tactical actions towards the attack of its
rivals.
A tactical response is a market-based strategy that the firm makes a fine- tuning
of its approaches to the competitors' actions.
FACTORS THAT INFLUENCE THE LIKELIHOOD OF RIVALS' ATTACK
1. Pioneering Incentive Strategy
The pioneering incentives strategy could be classified into two.
a. Pioneer or First Mover Strategy
These firms initiate competitive action to build competitive advantage in order
to improve market position. Firms of this nature believe that innovation will
improve its strategic actions and gain the needed market share.
ADVANTAGES
a. Consumer's loyalty to the product is developed.
b. Satisfied customer became committed to the product.
b. Imitators or Second Mover Strategy
The next firm that introduces the kind of product by the initiator is likely to
produce products that are imitations of the first mover. The clever second mover
studies the success and failure of the first mover and develop processes and
technologies that may be superior in creating customer value.
ADVANTAGES
a. Avoid the problems and mistakes of the pioneers or first mover.
b. Develop technologies and efficiency that are more superior.
c. Create products that create customer value.
2. Organizational Size Strategies
Big companies used to set on their laurels confidents that the competitors could
not easily overtake their size. Smaller organizations that are aggressive enough to
increase their market niche are more likely to launch competitive actions. Smaller
firms tend to be quicker, nimbler and flexible competitors as they rely on speed
and surprises as they can easily penetrate the technology advantage of the big
firms.
3. Product Quality Strategies
Quality is the byword in competitive strategy. It is the production of goods or
services with no defects involving a never-ending cycle of continuous
improvement.
In strategic objectives, quality refers to how the firm produces products that
exceed customer expectations.
For the corporate perspective quality is an outcome of how the firm complete the cycle
of the primary and support activities that develops customer satisfaction that gives the
firm the desired return on investments.
Customer's Perception of Quality Products
a. Performance- it refers to its operating characteristics.
b. Product Features- it refers to important special characteristics.
c. Flexibility- it refers to meeting operating specifications over some period period in
time.
d. Conformance- it refers to matching the pre-established standards.
e. Durability- it refers to the amount of use before it deteriorates.
f. Aesthetics- it refers to how the products looks and feel in the use of the user.
g. Serviceability- ease and speed of repair when it broke down.
TOTAL QUALITY MANAGEMENT
TQM became the focus of most competing firms in order to sustain the
development of quality products to its customers.
TQM is a managerial strategy of innovations that emphasized the organization's
total commitment to customer satisfaction.
It is the process of continuous improvement in production processes through the
use of data-driven strategies in problem solving. It also involves groups and
team's empowerment through employee's commitment to quality products.
Firms that implemented TQM strategies resulted in the following advantages:
a. Increase in customer satisfaction:
b. Cut down cost by 20 percent
c. Reduce down time cost in product innovation and processing
d. Increase productivity of work forces
e Greater incentives for work teams
The quality strategy affects the competitive rivalry and its competitive advantage.
a. Poor quality products cause decline in sales volume
b. Credibility in the market could not be easily corrected
c. Loss of customer patronage and loyalty.
d. Image building would take time to correct.
e Greater loss in profit margin