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chapter 5

Terms in this set (58)

Christensen definition of disruptive innovation
innovation that makes it so much simpler and so much more affordable to own and use a product that a whole new population of people can now have one.
Competitors
firms operating in the same market, offering similar products, and targeting similar customers
Competitive Rivalry
the ongoing set of competitive actions and competitive response that occur among firms as they maneuver for an advantageous market position
Competitive Behavior
the set of competitive actions and responses the firm takes to build or defend its competitive advantages and to improve its market position
Why competitive rivalry increase during recessiong
- Customers change buying behavior
- Look for ways to escape daily negative environment (Movie tickets sales increase, Candy consumption increase)
Multimarket Competition
firms competing against each other in several product or geographic markets
Competitive Dynamics
all competitive behavior (the total set of actions and responses taken by all firms competing within a market)
From Competitors to Competitive Dynamics
Competitors Engage in Competitive Rivalry to gain advantageous market position through Competitive Behavior (actions and responses) which results in Competitive Dynamics (actions and response taken by all firms competing in a market)
Competitive Dynamics vs. Competitive Rivalry
Dynamics: all firms
Rivalry: an individual firm and its competitiors
Success of Competitors 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 effects
- affects all type of strategy
- has the strongest influence on the firm's business-level strategy
Model of Competitive Rivalry; Firms are mutually interdependent
- a firm's competitive actions have noticeable effects on competitors
- a firm's competitive actions elicit competitive responses from competitors.
- firms are affected by each other's actions and responses
- over time firms take competitive actions and reactions
Marketplace success
is a function of both individual and the consequences of their use
Model of Competitive Rivalry (figure 5.2)
Competitive Analysis (Market Commonality and Resource Similarity)
Drivers of Competitive Behavior (Awareness, Motivation, Ability)
Interfirm Rivalry (likelihood of attack, likelihood of response)
Outcome (Market position and Financial performance)
Competitor Analysis
- used to help a firm understand its competitors
- firm studies competitors future objectives, current strategies, assumption, and capabilities
- better able to predict competitors' behaviors when forming its competitive actions and responses
Two Components to Assess
1. Market Commonality
2. Resource Similarity
What extent are firms competitors
High Market Commonality
High Resource Similarity
Direct Compeition
- combination of market commonality and resource similarity
- does not always imply intense rivalry
Market Commonality
- the number of markets with which a firm and a competitor are jointly involved
- degree of importance of the individual markets to each competitors
A firm with greater multimarket contact
is less likely to initiate an attack, but more likely to respond aggressively when attacked.
Resource Similarity
- how comparable the firm's tangible and intangible resources are to a competitor's in terms of both types and amounts
- can be difficult to assess when critical resources are intangible rather than tangible
Firm with similar types and amounts of resources are likely to:
- have similar strengths and weaknesses
- use similar strategies
Framework of Competitor Analysis
y axis: market commonality
x axis: resource similarity
high,high: The firm and its competitor use their similar resource portfolios to compete against each other in many markets that
are important to each. These conditions lead to the conclusion that the firms modeled in quadrant I are direct and mutually acknowledged competitors
low,low: share few markets and have little similarity in their resources, indicating that they aren't direct and mutually acknowledged competitors. Thus, a small local, family owned Italian restaurant does not compete directly against Olive Garden nor does it have resources that are similar to those of Darden Restaurants, Inc.
Drivers of Competitive Actions and Responses
- Awareness
- Motivation
- Ability
- Market Commonality
- Resource Dissimilarity
Awareness
- the extent to which competitors recognize the degree of their mutual interdependence that results from: 1. Market Commonality 2. Resource Similarity
Motivation
- the firm's incentive to action
- respond to a competitor's attack
- relates to perceived gains and losses
Ability
- each firm's resources
- the flexibility these resources provide
Without available resources the firms lacks the ability to 1) attack a competitor 2) respond to competitor's actions.
Market Commonality (driver)
- firm is more likely to attack the rival with whom it has low market commonality than the one with whom it competes in multiple markets.
Resource Dissimilarity
the greater the resource imbalance between the acting firm and competitors or potential responders, the greater will be the delay in response by the firm with a resource disadvnatage
when facing competitors with greater resources or more attractive market positions. firms should eventually respond, no matter how challenging the response
Competitor's awareness, motivation, and ability
help firm predict likelihood of an attack and respose to actions
Predictions from awareness, motivation, and ability
are grounded in market commonality and resource similarity
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.
Strategic Action (or Response)
a market-based move that involves a significant commitment of organization 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
Likelihood of Attack (other factors)
- First-mover incentives
- Organizational Size
- Quality
First-Mover
a firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position.
First movers allocate funds for:
- Production innovation and development
- Aggressive advertising
- Advanced research and development
First movers can gain:
- the loyalty of customers who may become committed to the firm's goods or services
- market share that can be difficult for competitors to take during future competitive rivalry
First movers often
- build on strategic foundation of superior research
- tend to be aggressive and willing to experiment and innovate
- tend to take higher, yet reasonable risks
- need to have liquid resources (slack:buffer or cushion provided by actual or obtainable resources that aren't currently in use and are in excess of the minimum resources needed to produce a given level of organizational output) that can be quickly allocated to support actions
- benefits can be substantial
- beware the learning curve
Second Mover
- responds to first mover through imitation
- more cautious than first movers
- study customer reactions to product innovations
- learn from mistakes of first mover, reducing its risks
- takes advantage of time to develop processes and technologies that are more efficient than first movers, reducing its costs
- can avoid both mistakes and huge spending
- will not benefit from first mover advanatges, lowering potential returns
Late Mover
- responds to a competitive action only after considerable time has elapsed since first and second movers have taken action
- success will be slow in coming and much less
- earn only average returns and delays its understanding of how to create value for customers
- substantially reduced risk and returns
Organizational Size - Small firms are likely to:
- launch competitive actions
- be quicker
- nimble and flexible competitors
- rely on speed and surprise to defend their competitive advantage
- have flexibility needed to launch a greater variety of competitive actions
Organizational Size - Large firms are likely to:
- initiate competitive as well as strategic actions over time
- have greater slack resources
- tend to rely on a limited variety of competitive actions, which can ultimately reduce their competitive success
-Walmart
Quality
- firm's good or services meet or exceed customers' expectations
- how a firm completes its primary and supporting activities
- universal, but insufficient alone
Product Quality Dimensions
Performance, Features, Flexibility, Durability, Conformance, Serviceability (ease and speed of repair), Aesthetics (look and feel), Perceived Quality (image)
Service Quality Dimensions
Timeliness, Courtesy, Consistency, Convenience, Completeness, Accuracy
Quality is only possible when
top-level managers support it and when its importance is institutionalized throughout the entire organization and its value chain
3 factors to predict how a competitor is likely to respond to competitive actions
1. Type of Competitive Action
2. Actor's Reputation
3. Dependence on the Market
Strategic Actions receive Strategic Responses
- elicit fewer competitive responses due to significant resources required and irreversibility
- time need to implement and assess a strategic action delays a competitor's responses
Type - Tactical responses are taken to counter the effects of tactical actions
A competitor will respond quickly to a tactical action
Actor's Reputation
- 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 competitive behavior
- firm studies responses that a competitor has taken previously when attacked to predict likely responses
Dependence on the market
- extent to which a firm's revenues or profits are derived from a particular market
- high market dependence will respond strongly to attacks threatening their position
Building and sustaining competitive advantages
core of competitive rivalry
Competitive Dynamics differ in
slow-cycle, fast-cycle, and standard-cycle markets
- effects of market speed on action and responses of all competitors in the market
Slow-Cycle Markets
- competitive advantages are shielded for long periods and imitation is costly
- sustainable competitive advantages
- proprietary capability
- competitive behavior should be oriented to protecting, maintaing, and extending that advantage
-launch(rise)->exploitation(flat)->counterattack(decline)
Fast-Cycle Markets
- competitive advantages are not shielded from imitation
- technology is non-proprietary
- imitation is rapid and inexpensive
- advantages are not sustainable
- reverse engineering (imitate or improve product)
- market volatility
- focus: creating innovation
- avoid loyalty one product
- quickly move on to another temporary competitive advantage
- up down up down up down
Standard-Cycle Markets
Firms seek large markets share;mass markets
Develop economies for sale
Gain customer loyalty through brand names
Carefully control operations
Manage a consistent experience for the customer
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