1. Chapter 5 Competitive Rivalry and Competitive Dynamics
Diane M. Sullivan, Ph.D., 2010
Sections modified from Hitt, Ireland, and Hoskisson, Copyright © 2008 Cengage
Sections modified from Gentner (2009)

2. The Strategic Management Process
After selecting a business-level strategy, firms must remain aware of competitive rivalry and dynamics that affect the success of their competitive actions and that allow them to predict competitor’s actions
Insert figure 1.1 graphic

3. Competitive Rivalry and Dynamics: Key Definitions
Competitors
Firms operating in the same market, offering similar products and targeting similar customers
Competitive Rivalry (firm-to-firm competitive actions)
Ongoing set of actions and responses occurring between competitors as they contend with each other for an advantageous market position
Also called interfirm rivalry
Competitive Dynamics (sum of all firm competitive actions)
Total set of actions and responses of all firms competing within a market
Strategic Action
Significant commitment of a specific and distinctive resource that is irreversible (Boeing’s midsized jet liner; Guess positioning to be more upscale)
Tactical Action
Commitment of less specific resources, taken to fine-tune a strategy, that is reversible (e.g., pricing, advertising)

4. Competitive Rivalry and Dynamics: Examples
Ex. 1: The “Dell way”: bypass middle-man and sell custom-built computers directly to consumer
This business model lowered costs and hence prices of products
But as of 2006, no longer created value to the degree it had and
End of 2006: HP 18.1% vs. Dell’s 14.7% market share
Why?
Ex. 2: Fast food industry

5. The Essence of Competitive Action and Response
Industry Environment is Changed
Industry Environment
Industry Environment is Changed Again
Company ‘B’ (e.g., McDonald’s) Initiates Competitive Response
Company ‘A’ (e.g., Starbucks) Initiates Competitive Action

6. The World Automobile Industry: Strategic Groups
* Chrysler and Mercedes (part of DiamlerChrysler) are separated for purposes of illustration.
Note: Members of each strategic group are only illustrative – not inclusive.
Ferrari
Lamborghini
Porsche
Toyota
Ford
General
Motors
Chrysler*
Honda
Nissan
Mercedes*
BMW
High
Hyundai
Kia
Breadth of Product Line
Low
Price

7. CapSim and Strategic Groups
Performance
Size
Low
Perf.
Trad
High
Size

8. A Model of Competitive Rivalry

9. Step 1: Conduct General Competitive Analysis
Purpose: assess similarity of firms to determine the extent to which they are competitors
Two components
Market Commonality
Resource Similarity
Extent of
Competitive Rivals

10. Market Commonality and Resource Similarity
Market Commonality (MC)
Increases when firms compete in similar markets
The more overlapping markets (e.g., multimarket competition), the higher the MC
E.g., geographic, product, customer, etc.
McDonald’s and Burger King: High MC
Resource Similarity (RS)
How comparable are competitor’s tangible and intangible resources in type and amount?
FedEx and UPS: high RS

11. Market Commonality and Resource Similarity (Con’t)
Firms should be less inclined to attack a firm that is likely to retaliate
High MC and RS should reduce likelihood of attack
Firms with high MC and with similar resources are more likely to be aware of each other’s competitive moves
When attacked, similar firms more likely to aggressively retaliate
Can lock firms into mutually destructive competitive situations
Fast food industry participants
Netflix and Blockbuster

12. Step 2: Study Drivers of Competitive Behavior
Awareness
Are managers aware of and do they understand key competitors?
Motivation
Does the firm have an “incentive” to take action or respond?
Ability
Does the firm have the necessary resources to attack?
Understanding competitor’s awareness, motivation and ability helps the firm to predict competitor behavior

13. Step 3: Examine Likelihood of Attack & Response
Likelihood of Attack (LoA) Factors
First-mover advantages—innovative actions can create competitive advantages. Can result in:
1) customer loyalty and 2) above-average market share
Be cautious of 2nd movers who can imitate at 65% of the cost of 1st movers
Organizational Size
Small firms are nimble/flexible so can more quickly act with a variety of actions;
Large firms actions are more numerous, but often predictable

14. Step 3: Examine Likelihood of Attack & Response
Likelihood of Response (LoR) Factors
A firm is likely to respond when the competitor’s action
Might produce a stronger competitive advantage for them
Damages the firm’s ability to create/maintain an advantage
The firm’s market position is less defensible
Three Factors to consider:
Type of competitive action
Reputation
Market dependence

15. Deal with the relative competitive speed in different markets
Competitive Dynamics
Competitive Dynamics concern actions and responses among all firms in a market
Deal with the relative competitive speed in different markets
Slow-cycle
Standard-cycle
Fast-cycle
Different speeds, or cycles, will affect competitive behavior (actions and responses)

16. Competitive Dynamics Continued
Slow-cycle markets
Often shielded from imitation due to costs and/or very strong brand loyalties
May lead to SCA, but eventually it will erode over time
Pharmaceuticals

17. Slow-cycle Market Gradual Erosion of SCA
Returns from a Sustained Competitive Advantage (SCA)
Exploitation
Counterattack
Launch
Time (years) 10 60

18. Competitive Dynamics Continued
Standard-cycle markets
Lead to highly competitive pressures despite world class products
Multimarket competition may dampen rivalry somewhat
SCA is possible
Fast-cycle markets
Intensely dynamic; 1st mover advantage unsustainable
Firms may cannibalize older generation products
SCA unlikely

19. Developing Temporary Advantages to Create Sustained Advantage in Fast- and Standard-Cycle Markets