Chapter 5

COMPETITIVE RIVALRY AND COMPETITIVE

DYNAMICS

ดร. กุศยา ลีฬหาวงศ์

Dr. Kusaya Leerahawong

1/2022 Seminar in Business Policy and Strategy

 Contents

❍ Definition
❍ Competitor Analysis:
❏ Market commonality and
❏ resource similarity

❍ Drivers of competitive behavior : Awareness, motivation and

ability
❍ Factors driving competitor’s competitive actions
❍ Competitor’s response to actions taken against it
❍ Competitive dynamics in slow-cycle, fast-cycle, and standard-
cycle markets.

2 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Definitions

❍Competitors
❏ Firms operating in the same market, offering similar products and
targeting similar customers
❍Competitive rivalry Mironov's VW
❏ The ongoing set of competitive actions and responses occurring
between competitors as they contend with each other for an
advantageous market position
❍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

3 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Definitions

❍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

4 Seminar in Business Policy and Strategy Dr. Kusaya L.

 From Competition to Competitive Dynamics
'

rum woo ñ I U wig on

,

Competitors Why?
❍ To gain an advantageous
market position
Engage
in Competitive
Rivalry
❍ Competitive Behavior
❏ Competitive actions ☒
How?
❏ Competitive responses Maggio
What Results?
What Results?

Competitive Dynamics n n V. riv's VuNW ,

Competitive actions and responses taken by all

firms competing in a market

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5 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Competitive Rivalry’s Effect on Strategy

❍ A strategy’s success is a function of:

❏ the firm’s initial competitive actions. it wiring

❏ how well it anticipates competitors’ responses to them. inning; iris or response Isis

❏ how well the firm anticipates and responds to its competitors’ initial

actions. Mn mind in removing iris Isis

❍ Competitive rivalry:

❏ affects all types of strategies, but it has a dominant influence on the

firm’s business-level strategy.

6 Seminar in Business Policy and Strategy Dr. Kusaya L.

 A Model of Competitive Rivalry

❍ Firms are mutually interdependent id du want

nunfszwivwon n.IE
❏ 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 noo yn J

7 Seminar in Business Policy and Strategy Dr. Kusaya L.

 A Model of Competitive Rivalry
Initiator's
Competitive Analysis Drivers of Competitive Behavior
• Market commonality • Awareness
• Resource similarity • Motivation
• Ability

Feedback
Competitive Rivalry
• Likelihood of Attack
• First-mover benefits
Outcomes • Organizational size
• Market position • Quality
• Financial performance • Likelihood of Response
• Type of competitive action
• Actor’s reputation
• Market dependence

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8 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Competitor Analysis

❍ A competitor analysis is the first step the firm takes to be able

to predict its competitors’ actions and responses.
❍ Competitor analysis is a technique firms used to understand
their competitive environment by studying competitors’:
❏ Future objectives
❏ Current strategies
❏ Assumptions
❏ Capabilities

❍ With the analysis, a firm is better able to predict competitors’

behaviors when forming its competitive actions and responses.

❏ helps a firm avoid competitive blind spots—situations

9 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Competitor Analysis

❍To complete a competitor analysis, firms study:

❏ Market Commonality and
❏ Resource Similarity

❍The question: ‘To what extent are firms competitors’?

❏ Number of markets in which firms compete against each other
❏ Competitor: High market commonality & resource similarity

❍Direct competition does not always imply intense rivalry

10 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Market Commonality

❍Market commonality is concerned with:

❏ The number of markets which a firm and a competitor are jointly
involved
❏ The 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

11 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Resource Similarity

❍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
❏ Use similar strategies

❍Assessing resource similarity is difficult if critical resources

are intangible rather than tangible.
❍Combination of market commonality & resource similarity
indicate a firm’s direct competitors

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 A Framework of Competitor Analysis
How's nlsmrg

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 Drivers of Competitive Behavior
Market commonality & resource similarity influence drivers of competitive
behavior
❍ Awareness is
❏ the extent to which competitors recognize the
degree of their mutual interdependence that
Awareness results from:
÷ Market commonality
÷ Resource similarityinoiroivsmn-ivf.IN arms's
❍ Motivation concerns
❏ the firm’s incentive to take action
Motivation ❏ or to respond to a competitor’s attack
❏ and relates to perceived gains and losses

❍ Ability relates to
❏ each firm’s resources
❏ the flexibility these resources provide
Ability ❍ Without available resources the firm
lacks the ability to
❏ attack a competitor
❏ respond to the competitor’s actions

14 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Drivers of Competitive Behavior (cont’d)
Market commonality & resource similarity influence drivers of competitive
behavior
❍ A firm is more likely to attack the rival with whom
it has low market commonality than the one with
Awareness whom it competes in multiple markets.
❍ Given the strong competition under market
commonality, it is likely that the attacked firm will
Motivation respond to its competitor’s action in an effort to
protect its position in one or more markets.

Ability ❍ The greater the resource imbalance between the

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

15 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Competitive Rivalry

❍Competitive Action risen

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

16 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Strategic and Tactical Actions

❍ Strategic Action (or Response)

❏ A market-based move that involves a significant commitment of
organizational resources and is difficult to implement and reverse.

❍ 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.
❍ 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.

17 Seminar in Business Policy and Strategy Dr. Kusaya L.

 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 v. Ian: niosliiiiiimtesourcereuo :
v. iÑnJau&wUfuiN
3. Quality

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 Factors Affecting Likelihood of Attack

❍ To be a first mover, the firm must have

First Mover the readily available resources to:
Incentives ❏ Invest significantly in R&D
❏ Rapidly and successfully produce and
market a stream of innovative products
First Mover ❍ First movers allocate funds for:
A firm that takes an initial
❏ Product innovation and development
competitive action in
❏ Aggressive advertising
order to build or defend
❏ Advanced research and development
its competitive
❍ First movers can gain:
advantages or to improve
❏ The loyalty of customers who may
its market position. become committed to the firm’s goods or
services
❏ Market share that can be difficult for
competitors to take during future
competitive rivalry
jointer -

a. infers off

19 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Factors Affecting Likelihood of Attack (cont’d)

❍ A second mover is a firm that responds

First Mover to the first mover’s competitive action,
typically through imitation.
❍ Second mover responds to the first mover’s
Second Mover competitive action, typically through
imitation:
Incentives ❏ Studies customers’ reactions to product
innovations
❏ Tries 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
❍ The most successful second movers can
interpret market feedback with precision in
order to respond quickly yet successfully to
first movers’ successful innovations.

20 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Factors Affecting Likelihood of Attack (cont’d)

❍ A late mover is a firm that

First Mover responds to a competitive action a
significant amount of time after
the first mover’s action and the
Second Mover second mover’s response.
❍ Late mover responds to a
competitive action only after
Late Mover considerable time has elapsed
❍ Any success achieved will be slow
in coming and much less than that
achieved by first and second
movers
❍ Late mover’s competitive action
allows it to earn only average
returns and delays its
understanding of how to create
value for customers
21 Seminar in Business Policy and Strategy Dr. Kusaya L.
 Factors Affecting Likelihood of Attack (cont’d)

An organization’s size affects the likelihood

First Mover it will take competitive actions as well as the
types and timing of those actions.
❍ Small firms:
Second Mover ❏ Act as nimble and flexible competitors
❏ Rely on speed and surprise to defend their
competitive advantage
❏ Have greater variety of competitive
Late Mover behavior options available

❍ Large firms
Organizational
❏ Often have greater slack
Size ❏ Have greater likelihood to initiate
competitive and strategic actions over time
❏ Tend to rely on a limited variety of
competitive actions, which can ultimately
reduce their competitive success

22 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Factors Affecting Likelihood of Attack (cont’d)

❍ Quality exists when the firm’s goods or

First Mover
services meet or exceed customers’
expectations
Second Mover
❍ Product quality dimensions include:
❏ Performance ❏ Conformance
Late Mover ❏ Features ❏ Serviceability
❏ Flexibility ❏ Aesthetics
❏ Durability ❏ Perceived quality
Organizational
Size ❍ Service quality dimensions include:
❏ Timeliness ❏ Convenience
Quality ❏ Courtesy ❏ Completeness
*

❏ Consistency ❏ Accuracy

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 Quality Dimensions of Goods and Services

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 Factors Affecting Likelihood of Response

❍In addition to market commonality, resource similarity,

and awareness, motivation, and ability, firms study
three other factors to predict how a competitor is
likely to respond to competitive actions:
❏ Type of competitive action

❏ Reputation

❏ Market dependence

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 Factors Affecting Strategic Response
nnynrnlsosoinr
❍ Strategic actions receive strategic responses
❏ Strategic actions elicit fewer total competitive responses innit ovnii
❏ The time needed to implement and assess a strategic action
delays competitor’s responses
Type of
❍ Tactical responses are taken to counter the effects of
Competitive Action tactical actions
❏ Competitor likely will respond quickly to a tactical actions

❍ An actor is the firm taking an action or response

❍ Reputation is the positive or negative attribute
ascribed by one rival to another based on past
Actor’s Reputation competitive behavior
❍ The firm studies responses that a competitor has
taken previously when attacked to predict likely
responses
❍ Market dependence is the extent to which a firm’s
Market revenues or profits are derived from a particular market
Dependence ❍ Competitors with high market dependence are likely to
respond strongly to attacks threatening their market
position

26 Seminar in Business Policy and Strategy Dr. Kusaya L.

 Competitive Dynamics versus Rivalry
❍Competitive Dynamics
❏ Ongoing actions and ❍Competitive Rivalry
responses taking place ❏ Ongoing actions and responses
between all firms competing taking place between an
within a market for individual firm and its
advantageous positions competitors for an
❏ Competitive dynamics differ advantageous market position
in slow-, fast-, and standard-
cycle markets.
÷ The sustainability of the firm’s
competitive advantages
differs by market type.

27 Seminar in Business Policy and Strategy Dr. Kusaya L.

Competitive Dynamics
❍ Competitive advantages are shielded from imitation for long
periods of time and imitation is costly iÑvis in v1 doin
❍ Competitive advantages are sustainable in slow-cycle markets
Slow-Cycle Markets ❍ All firms concentrate on competitive actions and responses to
protect, maintain and extend proprietary competitive
advantage
❍ The firm’s competitive advantages aren’t shielded from
imitation
❍ Imitation happens quickly and somewhat inexpensively
Fast-Cycle Markets ❍ Competitive advantages aren’t sustainable
❏ Competitors use reverse engineering to quickly imitate or improve on the
firm’s products
❍ Non-proprietary technology is diffused rapidly
inourru v1 of Un s
❍ Moderate cost of imitation may shield competitive advantages.
a g my 812 g g g
= z
of g
❍ Competitive advantages are partially sustainable if their quality
Standard-Cycle is continuously upgraded
Markets ❍ Firms
❏ Seek large market shares
❏ Gain customer loyalty through brand names
❏ Carefully control operations
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 Gradual Erosion of a Sustained Competitive Advantage
slow
cycle

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 Developing Temporary Advantages to Create Sustained Advantage
Fast cycle

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