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Rivalry & Competitive dynamics

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But first, Competition vs cooperation

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What is competition?

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Cell phone manufacturers, by market share… in units shipped

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How to spot competitive industries?1. Life cycle analysis

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How to spot competitive industries?

2. Compare Return on Invested Capital (ROIC)

Source: McKinsey, A long-term look at ROIC

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How do firms compete?How do we observe competition?

7Source: Schimmer, 2012. https://www.eventstudytools.com/competitive-dynamics

How do researchers observe competitive behavior?

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DefinitionsCompetitors: firms operating in the same market, offering similar products, and targeting similar customers.

Competitive Rivalry: 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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Strategy & RivalrySuccess 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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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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Competitor analysisCompetitor 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.

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Market commonality- 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.

A firm with greater multimarket contact is less likely to initiate an attack, but more likely to more respond aggressively when attacked.

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Resource similarity- 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 and use similar strategies.

Assessing resource similarity is difficult if critical resources are intangible, rather than tangible.

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Example: systematic analysis of market commonality

Product market →

A B C D Sum

Focal company X X 2

Competitor A X X 2

Competitor B X X X 3

!!!Same process may be used for Resource Similarity, on a separate spreadsheet

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Example: systematic analysis of resource similarity

Resource or capability

category→

A B C D Sum

Focal company X X 2

Competitor A X X 2

Competitor B X X X 3

!!!

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Competitor map

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Drivers of competitive behavior

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Drivers of competitive behavior

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Drivers of competitive behavior

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Drivers of competitive behavior

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Drivers of competitive behavior

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RivalryCompetitive 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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Rivalry…Strategic Action (or Response)

Market move designed to implement strategy and represents significant commitments and distinctive resources. Difficult to implement and reverse

Ex: New product introduction, Acquisition, International expansion

Tactical Action (or Response)

Designed to fine-tune a strategy. Involves fewer and more general resources, are easy to implement and reverse. Easier for competitors to respond to.

Ex: Price increases/decreases, some forms of advertising

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These dimensions are observable in the marketplace and allow you to identify competitive behavior

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Common competitive tactics- Pretend you don’t exist- Copy your offering- Trash, sue, undercut (hire talent away)- Go toe to toe (improving customer experience)- Leapfrog your offering (product/service is of much better quality)

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Why imitation can be a viable competitive tactic?

● Not all firms intend to lead their industry, just be profitable

● Following the leader in a profitable industry carries far less development costs and risks

● Good execution of someone else’s idea could be more valuable than the idea itself

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Isomorphism. Or do all cars look the same?

Source: https://m edium .com /swlh/the-zom bie-m obile-b03932ac971d

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In conclusion:

● Spot competitive industries based on life-cycle, profitability (ROIC), and industry structure

● Analyze rivalry based on frequency, strength, velocity, and types of competitive actions and responses

● Strategic competitor analysis based on market commonality and resource similarity

● Isomorphism vs sustained advantage as legitimate competitive strategies

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