Chapter 11- Competitive Strategy


Terms in this set (...)

1. strategic group analysis
2. strategy canvas
2 ways to understand the competitive landscape
strategic group analysis
analysis that breaks down the structure of a market or industry into groups of companies that compete directly against each other and indirectly against other companies in same industry
strategic group
a set of companies that compete in similar ways with similar business models pursuing similar sets of customers
customer segments
source of why some industries contain groups of companies that compete directly against each other but only indirectly against companies in other groups
value chain activities
what the main differences on strategic group maps usually relate to among companies
strategic groups maps
tool for strategic group analysis that is created by identifying the main difference sin the ways in which firms in an industry compete to deliver value
when these are present on strategic group maps, it is a sign that there is strategic group within the industry
distinctive clusters
when creating a strategic group map, want to choose dimensions that create these
barrier to mobility
any factor that limits the ability of a company to move between strategic groups
strategy canvas
way to evaluate differences among competitors through assessing relative competitive strengths and weaknesses against specific purchase criteria
strategy canvas
allows analyst to grasp similarities and differences in how companies attempt to offer unique value to customers relative to competitors through rating firms on various criteria customers use to make purchase decisions
strategy canvas
steps in creating include:
1. features customer cares about are identified and placed on horizontal axis
2. company performance is evaluated against these criteria and scored on vertical axis
3. provides insight into how competitive offerings are differentiated
1. what drives the competitor?
2. what is the competitor doing or capable of doing?
2 questions to ask when creating a competitor response profile to evaluate the competition
1. objectives
2. assumptions
2 things that are identified when adddressing the category of: what drives the competitor?
goals of the competitor
ideas that company has that is source of their objectives
competitor response profile
profile of a competitor that identifies its objectives and assumptions, its strategy, and its resources and capabilities in order to anticipate how the competitor might respond to rival actions
1. objectives
2. assumptions
3. strategy
4. resources and capabilities
4 things that are identifies when creating a competitor response profile
1. strategy
2. resources and capabilities
when evaluating competitors, after identifying objectives and assumptions, identifying these will allow one to answer:
what is competitor doing or capable of doing?
how will a competitor respond to specific moves
question that can be answered after a company identifies a competitor's:
objectives, assumptions, strategy, and resources/capabilities
game theory
a structured approach to analysis of competitor interaciton that yields predictions about which actions are most likely to be chosen by rivals
game theory
provides a structured approach to give insight into how competitors may respond to specific moves in competitive industries
game theory
tool that is useful approach in contexts where:
few rivals exist
rivals are considering moves such as price changes, capacity adjustments, or new product features and are wondering how competitors are likely to respond
simultaneous move games
EX would be prisoner's dilemma. games in which Nash equilibrium is relevant theory. game with two players and each player has 2 choices. players make moves simultaneously. game only played once
Nash equilibrium
a set of moves in a game that simultaneously maximize each firm's payoff, given the choices of rivals, and from which no player has an incentive to defect
nash equilibrium
reached by identifying a cell of choices that are simultaneously preferred by the players of a game, when there is no incentive to change
in game theory, this is a set of best responses to every possible rival action
dominant strategy
in game theory, a set of actions that is always played no matter what a rival chooses to do. is best choice under every alternative choice of rival. makes finding nash equilibrium eaier
prisoner's dilemma/nash equilibrium
key lesson is that each player makes a choice in their own interest when a better outcome exists
infinitely repeated games
game theory that reflects real life situation in which most companies are in competition with rivals each and every day, month, or year with no certain end date. causes players to believe there is always a future and look for opportunities to get larger amount of profit over a longer period of time
tit-for-tat strategy
game strategy that most companies enter into due to game theory idea of infinitely repeated games.
tit-for-tat strategy
a strategy that responds in kind to the moves of rivals
ongoing collusion
typically is the best approach and it is what most firms in ling-standing stable competition practice in regards to game theory
game theory
useful tool for analyzing and predicting rival actions in any context in which discreet actions are clear and payoffs can be specified
1. know your strengths and weaknesses
2. bring strength against weaknesses
3. protect and neutralize vulnerabilities
4. develop strategies that cannot be easily imitated or copied
4 general principles of competitive strategy
knowing your strengths and weaknesses
principle of competitive strategy that requires examining resources and capabilities
company's resources and capabilities that allow them to deliver unique value and what they must develop through focus, investment, and effort
company's resources and capabilities are subject to rapid obsolescence, easy imitation or high cost not recouped by value
bring strength against weakness
principle of competitive strategy that entails targeting a firm's resources and capabilities that deliver unique value against competitor's weaknesses
bring strength against weakness
principle of competitive strategy that includes concept that any apparent competitor strength that can be undermined or eroded through direct competitive action can be considered a weakness, so companies should not be afraid to attack competitive strengths
protect and neutralize vulnerabilities
principle of competitive strategy that entails a company identifying its weaknesses and then strengthening and/or neutralizing them
develop strategies that cannot be easily copied
principle of competitive strategy by doing something different and going to where the competitor is not. can be done through pursuing special market niches, reconfiguring the sequence of activities along the value chain, or recombining and leveraging resources of themselves and partners in ways that deliver value
market context
strongly influences scope of competitive action and the aspect within it of market structure is highly influential
market structure
the way rivals in a market interact and bargain for advantage. the number of rivals in a particular market. aspect within market context
1. monopoly
2. oligopoly
3. perfect competition "competition"
3 categories of market structures
a market of one firm or one highly dominant firm
reinforce its monopoly
objective of monpolist
1. raising entry barriers
2. limiting competitive access to scarce resources
3. innovating and patenting
4. introducing new products frequently
4 ways in which monopolists obtain its objective of reinforcing its monopoly
raise entry barriers
way in which monopolists obtain its objective through:
implementing factors that increase the cost, lower the profit margins, or limit the market share of entrants to a market
barrier to entry
any factor that increases the costs, lowers the profit margins, or limits the market share of entrants to a market
limit pricing
practice monopolist may employ to raise barrier of entry through setting the market price of a product just low enough so that a new entrant cannot pay the cost of entry to come into a market and be profitable
1. limit pricing
2. heavy advertising
3. advertising over long periods
three tactics monopolists may use to raise barriers to entry
limit competitive access to scarce resources
way in which monopolists obtain its objective through:
placing a lock on resources that it uses to produce its product. can do this through hiring best staff, securing most geographically advantageous locations, or procuring all capacity available in a market for a particular input
innovate and patent
way in which monopolists obtain its objective through:
staying ahead of potential market entrants through protecting creations or coming up with new ones
introduce new products frequently
way in which monopolists obtain its objective through:
creating new offerings to maintain customer demand associated with their products and stay ahead of potential entrants
markets of a few firms (2-5, up to 10), number of firms depends on ability to closely monitor competitors. firms within this structure monitor and mimic rival behavior (price and product features) and use tit for tat strategies
1. monitor and mimic rival behavior
2. use tit for tat strategies
2 strategies of oligopolist firms
monitor and mimic rival behavior
strategy of oligopolist firms:
used to avoid negative effects of competition. in process, norms emerge in competition around particular approaches to the market
1. price
2. product or service feature
3. ways firms appeal to particular market segments
3 behaviors that oligopolist firms tend to monitor and mimic
employ tit-for-tat strategies
strategy of oligopolist firms:
where strategy is responding to moves of rivals, including giving out punishments for behaviors that violates the norms
perfect competition/"competition"
market structure that are markets with many firms. firms are price takers rather than price setters b/c attempts to price strategically are not effective and hurt the firm that tries
market prevailing price
price that firms in perfect competitive markets set their prices at
1. consolidate markets
2. pursue low cost
3. pursue differentiation strategies
3 strategies firms in perfect competition markets pursue since products are largely homogenous and very little differentiation exists in these markets
merge or consolidate markets
strategy firms in perfect competition markets pursue:
b/c they suffer from superior bargaining power of buyers or suppliers. strategy allows them to reduce number of firms and strengthens bargaining power b/w firms' upstream suppliers and downstream customers and leads to an industry evolving towards oligopoly
pursue low cost strategy
strategy firms in perfect competition markets pursue:
since they are price takers and have little control over price, this strategy helps them realize profit
pursue a differentiation strategy
strategy firms in perfect competition markets pursue:
to set themselves apart from the pack and can be done through adding product features, store locations, bundled services, or other variations to create unique value. can sometimes be left to create unique value on other aspects of the buying experience
innovation and speed
what must be emphasized in reconfiguration of processes and capabilities that companies in dynamic environments employ