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Competitive Rivalry and

Competitive Dynamics

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Definitions

• Competitors:
• are firms operating in the same market, offering similar products, and
targeting similar customers.
• Competitive Rivalry:
• is the ongoing set of competitive actions and responses occurring between
competitors.
• influences an individual firm’s ability to gain and sustain competitive
advantages.

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Definitions

• Competitive Behavior
• The set of competitive actions and competitive responses the firm takes to
build or defend its competitive advantages and to improve its market
position.
• Multimarket Competition
• Firms competing against each other in several product or geographic
markets.
• Competitive Dynamics
• The total set of actions and responses taken by all firms competing within a
market.

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 From Competition to Competitive Dynamics
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Competitors Why?
To gain an advantageous
market position
Engage
in Competitive
rivalry
Competitive behavior
• Competitive actions
• Competitive responses
How?
What
Results? What Results?

Competitive dynamics
Competitive actions and responses taken
by all firms competing in a market

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Competitive title
Rivalry’s styleon Strategy
Effect

• Success of a strategy is determined by:

• the firm’s 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 a dominant influence on the firm’s business-level strategy or strategies.

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A Model Master titleRivalry
of Competitive style

• Firms are mutually interdependent when:

• a firm’s competitive actions have noticeable effects on its competitors.
• a firm’s competitive actions elicit competitive responses from its competitors.
• competitors feel each other’s actions and responses.
• Marketplace success is a function of both individual strategies and
the consequences of their use.

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A Model of Competitive Rivalry
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Click to editAnalysis
Competitor Master title style

• 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.
• Lack of information needed to predict these conditions for
competitors create competitive blind spots.

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Click
MarkettoCommonality
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• Market commonality is concerned with the:

• number of markets with which a firm and a competitor are jointly involved.
• degree of importance of the individual markets to each competitor.
• Firms competing against one another in several or many markets
engage in multimarket competition (Pepsi and Coca cola).
• A firm with greater multimarket contact is less likely to initiate an attack, but
more likely to respond more aggressively when attacked (computer
industry).

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Resource Master title style
Similarity

• Resource similarity is:

• how comparable the firm’s tangible and intangible resources are to a
competitor’s in terms of both types and amounts.
• Firms with similar types and amounts of resources are likely to:
• have similar strengths and weaknesses.
• use similar strategies.
• Assessing resource similarity is difficult if critical resources are
intangible, rather than tangible.

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A Framework of Competitor
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Point toedit
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• If a firm has low market commonality with another firm, will

“attacking” be the right strategy vis a vis a firm with high market
commonality??

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Drivers
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edit Behavior
Master title style
• Awareness is:
Awareness • the extent to which competitors
recognize the degree of their
mutual interdependence that
results from:
• market commonality
• resource similarity

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Drivers of Competitive Behavior
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Awareness
• Motivation concerns:
• the firm’s incentive to take
action or to respond to a
Motivation competitor’s attack
• relates to perceived gains
and losses

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Drivers of Competitive Behavior
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Awareness
• Ability relates to:
• each firm’s resources
Motivation • the flexibility that these
resources provide
• Without available resources
Ability the firm lacks the ability to:
• attack a competitor
• respond to the competitor’s
actions

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Drivers of Competitive Behavior
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Awareness
• A firm is more likely to attack the
rival with whom it has low
Motivation market commonality than the
one with whom it competes in
multiple markets.
Ability • Given the strong competition
under market commonality, it is
Market likely that the attacked firm will
Commonality respond to its competitor’s
action in an effort to protect its
position in one or more markets.

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Drivers of Competitive Behavior
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Awareness

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

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Competitive Rivalry title style

• Competitive Action
• A strategic or tactical action the firm takes to build or defend its competitive
advantages or improve its market position.
• Competitive Response
• A strategic or tactical action the firm takes to counter the effects of a
competitor’s competitive action.

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Strategic andMaster title
Tactical style
Actions

• Strategic Action (or Response)

• A market-based move that involves a significant commitment of
organizational resources and is difficult to implement and reverse (MS and
Nokia)
• Tactical Action (or Response)
• A market-based move that is taken
to fine-tune a strategy:
• Usually involves fewer resources
• Is relatively easy to implement and reverse

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Factors Affecting Likelihood
Click to edit Master title style of Attack
• First movers allocate funds for:
First Mover
• product innovation and
Incentives development
• aggressive advertising
First Mover (Joseph • advanced research and
Schumpeter) development
A firm that takes an • First movers can gain:
initial competitive action • the loyalty of customers who may
in order to build or become committed to the firm’s
defend its competitive goods or services
advantages or to • market share that can be difficult
improve its market for competitors to take during
position. future competitive rivalry

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Factors Affecting Likelihood of
Click to edit Master title style Attack (cont’d)

First Mover
• Second mover responds to the first
mover’s competitive action,
typically through imitation. They:
Second Mover
Incentives • study customers’ reactions to
product innovations
• try to find any mistakes the first
mover made, and avoid them
• can avoid both the mistakes and
the huge spending of the first-
movers
• may develop more efficient
processes and technologies

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Factors Affecting Likelihood of
Click to edit Master title style Attack (cont’d)

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

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Factors Affecting Likelihood of
Click to edit Master title style Attack (cont’d)

First Mover
• Small firms are more likely to:
• launch competitive actions
Second Mover • be quicker in doing so
• Small firms are perceived as:
• nimble and flexible competitors
Late Mover
Incentives • relying on speed and surprise to
defend competitive advantages or
develop new ones while engaged in
Organizational competitive rivalry
Size - Small • having the flexibility needed to
launch a greater variety of
competitive actions

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Factors Affecting Likelihood of
Click to edit Master title style Attack (cont’d)

First Mover
• Large firms are likely to initiate
more competitive actions as well
Second Mover as strategic actions during a given
time period
• Large organizations commonly
Late Mover have the slack resources required
Incentives to launch a larger number of total
competitive actions
Organizational • Think and act big and we’ll get
Size - Large smaller. Think and act small and
we’ll get bigger.
Herb Kelleher
Former CEO, Southwest Airlines

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Factors Affecting Likelihood of
Click to edit Master title style Attack (cont’d)

First Mover
• Quality exists when the
firm’s goods or services
Second Mover
meet or exceed customers’
expectations
Late Mover • Product quality dimensions
Incentives include:

Organizational - performance - conformance

Size
- features - serviceability
- flexibility - aesthetics
Quality
(Product) - durability - perceived
quality
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 Quality Dimensions of Goods and
Services
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Factors Affecting Likelihood of
Click to edit Master title style Attack (cont’d)

First-Mover

Second Mover
• Service quality dimensions
include:
Late Mover
Incentives • timeliness
• courtesy
Organizational • consistency
Size • convenience
• completeness
Quality • accuracy
(Product)
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Click to editofMaster
Likelihood title style
Response

• Responses to a competitor’s action are taken when the action:

• leads to better use of the competitor’s capabilities to gain or produce
stronger competitive advantages or an improvement in its market position.
• damages the firm’s ability to use its capabilities to create or maintain an
advantage.
• makes the firm’s market position becomes less defensible.

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 Factors Affecting Likelihood
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of Response

• Firms study three other factors to predict how a competitor is likely

to respond to competitive actions:
1. Type of competitive action
2. Actor’s reputation
3. Market dependence

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Factors Affecting Strategic
Click to edit Master title style Response
Type of • Strategic actions receive
Competitive strategic responses
Action
• Strategic actions elicit fewer total
competitive responses.
• The time needed to implement
and assess a strategic action
delays competitor’s responses.
• Tactical responses are taken to
counter the effects of tactical
actions
• A competitor likely will respond
quickly to a tactical actions.

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Factors Affecting Strategic Response
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Type of • An actor is the firm taking an

Competitive action or response.
Action
• Reputation is the positive or
Actor’s negative attribute ascribed by
Reputation one rival to another based on
past competitive behavior.
• The firm studies responses
that a competitor has taken
previously when attacked to
predict likely responses.

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Factors Affecting Strategic Response
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Type of
Competitive
Action • Market dependence is the
extent to which a firm’s
Actor’s revenues or profits are
Reputation
derived from a particular
market.
Market
Dependence • Competitors with high market
dependence are likely to
respond strongly to attacks
threatening their market
position.

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Click to edit Master
Competitive title
Dynamics style Rivalry
versus

• Competitive Dynamics
• Ongoing actions and responses taking place between all firms
competing within a market for advantageous positions.
• Competitive Rivalry
• Ongoing actions and responses taking place between an
individual firm and its competitors for advantageous market
position.

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Competitive Dynamics
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Slow-cycle • Competitive advantages are

Markets shielded from imitation for
long periods of time and
imitation is costly.
• Competitive advantages are
sustainable in slow-cycle
markets.
• All firms concentrate on
competitive actions and
responses to protect, maintain
and extend proprietary
competitive advantage.

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 Gradual Erosion of a Sustained
Advantage
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Competitive Dynamics (cont’d)
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Slow-cycle
Markets • The firm’s competitive
advantages aren’t shielded
Fast-cycle from imitation.
Markets • Imitation happens rapidly and
is inexpensive.
• Competitive advantages are
not sustainable.
• Competitors use reverse
engineering to quickly imitate or
improve on the firm’s products.
• Non-proprietary technology is
diffused rapidly.

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 Developing Temporary Advantages to
Create
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Competitive Dynamics (cont’d)
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Slow-cycle
Markets
• Moderate cost of imitation
may shield competitive
Fast-cycle
Markets advantages.
• Competitive advantages are
Standard-cycle partially sustainable if their
Markets quality is continuously
upgraded.
• Firms:
• seek large market shares
• gain customer loyalty through
brand names
• carefully control operations
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