1. Competitive Rivalry and
Competitive Dynamics
Chapter 6
© 2006 by Nelson, a division of Thomson Canada Limited. 6-1

2. Competitive Rivalry &
Competitive Dynamics
Knowledge objectives:
• Define competitors, competitive rivalry, competitive
behaviour, and competitive dynamics.
• Describe market community and resource similarity as
the building blocks of a competitor analysis.
• Explain awareness, motivation, and ability as drivers
of competitive behaviour.
• Discuss factors affecting the likelihood a competitor
will take competitive actions.
• Discuss factors affecting the likelihood a competitor
will respond to actions taken against it.
• Explain competitive dynamics in slow-cycle, fast-cycle,
and standard-cycle markets.
© 2006 by Nelson, a division of Thomson Canada Limited. 6-2

3. Competitive Dynamics
Results from a series of competitive actions
and competitive responses among firms
competing within a particular industry.
Competitive Rivalry
Exists when two or more firms jockey with one
another in the pursuit of better market position.
© 2006 by Nelson, a division of Thomson Canada Limited. 6-3

4. From Competitors to
Competitive Dynamics
Competitors • To gain an advantageous
market position
Why?
Engage
in Competitive
• Through competitive
rivalry
How? behavior -
• Competitive actions
Creates? • Competitive responses
Creates?
Competitive Dynamics
• Competitive actions and responses taken by all
firms competing in a market
© 2006 by Nelson, a division of Thomson Canada Limited. 6-4

5. A Model of Competitive Rivalry
Drivers of
Outcomes
Competitive
Ability for
Behaviour Interfirm Rivalry:
Action and
Attack & Response
Response
Competitor
Analysis
Feedback
© 2006 by Nelson, a division of Thomson Canada Limited. 6-5

6. A Model of Competitive Rivalry (1)
Drivers of
Outcomes
Competitive
Ability for
Behaviour Interfirm Rivalry:
Action and
Attack & Response
Response
Awareness
Motivation
Competitor
Analysis
Feedback
© 2006 by Nelson, a division of Thomson Canada Limited. 6-6

7. Drivers of Competitive Behaviour
Drivers of
Competitive
Behaviour
Do managers understand key
Awareness characteristics of competitors?
Does the firm have appropriate
Motivation incentives to attack or respond?
© 2006 by Nelson, a division of Thomson Canada Limited. 6-7
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8. A Model of Interfirm Rivalry (2)
Drivers of
Outcomes
Competitive
Ability for
Behaviour Interfirm Rivalry:
Action and
Attack & Response
Response
Awareness
Motivation
Competitor
Analysis
Market
Commonality
Resource
Similarity
Feedback
© 2006 by Nelson, a division of Thomson Canada Limited. 6-8

9. Competitor Analysis
The first step the firm takes to be able to
predict the extent and nature of it’s rivalry
with each competitor.
© 2006 by Nelson, a division of Thomson Canada Limited. 6-9

10. Competitor Analysis
• Market Commonality
The number of markets with which the firm and a
competitor are jointly involved and the degree of
importance of each market.
• Resource Similarity
The extent to which the firm’s tangible &
intangible resources are comparable to a
competitors in terms of both type & amount.
© 2006 by Nelson, a division of Thomson Canada Limited. 6-10

11. Competitor Analysis
Competitor
Analysis
Market Do firms compete with each
Commonality other in multiple markets?
Multipoint competition tends to reduce competitive interactions, but
increases likelihood of response where interaction occurs.
For example, airlines price flights similarly, but respond quickly
when competitors introduce promotional prices.
© 2006 by Nelson, a division of Thomson Canada Limited. 6-11
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12. Competitor Analysis
Competitor
Analysis
Market Do firms compete with each
Commonality other in multiple markets?
Resource Do competitors possess similar
Similarity types or amounts of resources?
© 2006 by Nelson, a division of Thomson Canada Limited. 6-12
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13. A Model of Interfirm Rivalry (3)
Drivers of
Outcomes
Competitive
Ability for
Behaviour Interfirm Rivalry:
Action and
Attack & Response
Response
Awareness
Motivation Likelihood of Attack
First Mover Incentives
Likelihood of Response
Competitor Competitive Action Type
Analysis Actor’s Reputation
Market Dependence on Market
Commonality
Resource Availability
Resource
Similarity
Feedback
© 2006 by Nelson, a division of Thomson Canada Limited. 6-13

14. Factors Affecting Likelihood of
Attack: First Mover Incentives
First mover • First movers allocate funds for
incentives – product 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
© 2006 by Nelson, a division of Thomson Canada Limited. 6-14

15. Factors Affecting Likelihood of
Attack: Size
First mover • Small firms are more likely
incentives – to launch competitive actions
– to be quicker in doing so.
Size • Small firms are perceived as
– nimble and flexible competitors
– relying on speed and surprise to
defend their competitive advantages
or develop new ones while engaged
in competitive rivalry.
• Small firms have the flexibility needed to
launch a greater variety of competitive
actions.
© 2006 by Nelson, a division of Thomson Canada Limited. 6-15

16. Factors Affecting Likelihood of
Attack: Size
First mover • Large firms are likely to initiate more
incentives competitive actions as well as strategic
actions during a given time period.
Size • Large organizations commonly have the
slack resources required to launch a larger
number of total competitive actions.
“Think and act big and we’ll get smaller. Think and
act small and we’ll get bigger.”
- Herb Kelleher,
Former CEO, Southwest Airlines
© 2006 by Nelson, a division of Thomson Canada Limited. 6-16

17. Factors Affecting Likelihood of
Attack: Quality
First mover • Quality exists when the firm’s goods or
incentives services meet or exceed customers’
expectations.
Size
• Product quality dimensions include:
– Performance
Quality – Features
– Flexibility
– Durability
– Conformance
– Serviceability
– Aesthetics
– Perceived quality
© 2006 by Nelson, a division of Thomson Canada Limited. 6-17

18. Factors Affecting Likelihood of
Attack: Quality
First mover • Quality exists when the firm’s goods or
incentives services meet or exceed customers’
expectations.
Size • Service quality dimensions include:
– Timeliness
– Courtesy
Quality
– Consistency
– Convenience
– Completeness
– Accuracy
© 2006 by Nelson, a division of Thomson Canada Limited. 6-18

19. Quality Dimensions of Goods & Services
Product Quality Dimensions:
Performance Operating characteristics
Features Important special characteristics
Flexibility Meeting operating specifications over time
Durability Amount of use before performance declines
Conformance Match with pre-established standards
Serviceability Ease and speed of repair or normal service
Aesthetics How a product looks and feels
Perceived Subjective assessment of characteristics
quality (product image)
© 2006 by Nelson, a division of Thomson Canada Limited. 6-19

20. Quality Dimensions of Goods & Services
Service Quality Dimensions:
Timeliness Performed in promised period of time
Courtesy Performed cheerfully
Consistency Giving all customers similar experiences
Convenience Accessibility to customers
Completeness Fully serviced, as required
Accuracy Performed correctly each time
© 2006 by Nelson, a division of Thomson Canada Limited. 6-20

21. Factors Affecting Likelihood of
Response
• Firms study three factors to predict how a
competitor is likely to respond to competitive
actions:
- type of competitive action
- reputation
- market dependence
© 2006 by Nelson, a division of Thomson Canada Limited. 6-21

22. Competition
• Competitive Dynamics
– competitive dynamics concerns the ongoing actions
and responses taking place among all firms
competing within a market for advantageous positions
• Competitive Rivalry
– building and sustaining competitive advantages are at
the core of competitive rivalry
– competitive advantages are the link to an
advantageous market position
© 2006 by Nelson, a division of Thomson Canada Limited. 6-22

23. Factors Affecting Likelihood of
Response: Type of Competitive Action
Type of • Strategic actions receive strategic
competitive responses
action • Tactical responses are taken to counter
the effects of tactical actions
• Strategic actions elicit fewer total
competitive responses
• A competitor likely will respond quickly to
a tactical action
• The time needed to implement and
assess a strategic action delays
competitors’ responses
© 2006 by Nelson, a division of Thomson Canada Limited. 6-23

24. Factors Affecting Likelihood of
Response: Reputation
Type of • An actor is the firm taking an action or
competitive response
action • Reputation is the positive or negative
attribute ascribed by one rival to another
Reputation based on past competitive behavior
• The firm studies responses that a
competitor has taken previously when
attacked to predict likely responses
© 2006 by Nelson, a division of Thomson Canada Limited. 6-24

25. Factors Affecting Likelihood of
Response: Market Dependence
Type of • Market dependence is:
competitive – the extent to which a firm’s revenues
action or profits are derived from a particular
market.
Reputation • In general, firms can predict that
competitors with high market
Market dependence are likely to respond
dependence strongly to attacks threatening their
market position.
© 2006 by Nelson, a division of Thomson Canada Limited. 6-25

26. Model of Interfirm Rivalry: Outcomes
Outcomes
Competitive Market Types
Slow, Standard, Fast Cycle
Slow, Standard, Fast, Cycle Slow cycle markets are
frequently shielded by
monopoly power or very
strong brand loyalties.
This market outcome &
lack of interfirm rivalry
may lead to sustained
competitive advantage.
© 2006 by Nelson, a division of Thomson Canada Limited. 6-26
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27. Model of Interfirm Rivalry: Outcomes
Outcomes
Standard cycle markets
Competitive Market Types
often lead to highly
Slow, Standard, Fast Cycle
Slow, Standard, Fast Cycle competitive pressures
despite world class
products.
Firms with multi-market
competition may dampen
rivalry somewhat.
Sustained competitive
advantage is a possible
outcome in this instance.
© 2006 by Nelson, a division of Thomson Canada Limited. 6-27

28. Model of Interfirm Rivalry: Outcomes
Outcomes
Competitive Market Types Fast cycle markets are
intensely dynamic and a
Slow, Standard, Fast Cycle
Fast Cycle
1st mover advantage is
often unsustainable.
Firms may cannibalize older
generation product while
introducing new innovative
premium ones.
Sustainable competitive
advantage is unlikely.
© 2006 by Nelson, a division of Thomson Canada Limited. 6-28

29. Model of Interfirm Rivalry: Outcomes
Outcomes
Competitive Market Types
Slow, Standard, Fast Cycle
Competitive Outcomes
Sustained Competitive
Advantage
Temporary Advantage
© 2006 by Nelson, a division of Thomson Canada Limited. 6-29
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30. Competitive Advantage
Which Eventually Erodes
Returns
from a
Competitive Exploitation
Advantage Counterattack
Launch
Time (years) 5
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31. Obtaining Temporary Advantages to Create
Returns
Sustained Advantage
from a
Competitive
Advantage
Exploitation Counterattack
Launch
5 10 15
Time (years)
© 2006 by Nelson, a division of Thomson Canada Limited. 6-31

32. Obtaining Temporary Advantages to Create
Sustained Advantage
Returns
from a
Sustained Firm has already
Competitive moved on to
Advantage Advantage No. 2
Exploitation Counterattack
Launch
5 10 15
Time (years)
© 2006 by Nelson, a division of Thomson Canada Limited. 6-32

33. Obtaining Temporary Advantages to Create
Sustained Advantage
Returns
from a
Sustained Firm continues to
Competitive move on to the next
Advantage Advantage
Exploitation Counterattack
Launch
5 10 15
Time (years)
© 2006 by Nelson, a division of Thomson Canada Limited. 6-33