Chapter 5 PDF

Preview

Summary

Chapter lecture notes....

Description

Chapter 5 Introduction and Definitions Competitors - Firms operating in the same market, offering similar products and targeting similar customers Competitive Rivalry - Ongoing set of competitive actions and competitive responses occurring between competitors as they contend with each other for an advantageous market position Competitive Behavior (offensive and defensive strategies) - Set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position Competitive Dynamics - Total set of actions and responses of all firms competing within a market - all competitive behavior

More on Competitive Behavior Competitive Behavior (offensive and defensive strategies) - Set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position  

Competitive Action - Strategic or tactical action firm takes to build or defend its competitive advantages or improve its market position Competitive Response - Strategic or tactical action the firm takes to counter effects of a competitor's action

What are the strategic and tactical actions? 



Strategic actions/responses - Market-based moves that signify a significant commitment of organizational resources to pursue a specific strategy o Difficult to implement and reverse Tactical actions/responses - Market-based moves that involve fewer resources to fine-tune a strategy that is already in place o Easier to implement and reverse

Competitive Rivalry Model

Competitor Analysis  

  

Competitor Analysis is the first step to understanding competitive rivalry and identifying who your direct competitors are Involves collecting competitive intelligence (Chapter 2) o The set of data and information the firm gathers to better understand and anticipate competitors' objectives, strategies, assumptions, and capabilities Focuses on trying to predict competitors' behavior The questions: 'To what extent are firms competitors?' Two components should be addressed o Market commonality o Resource similarity

A Framework of Competitor Analysis Market Commonality - The number of markets with which the firm and a competitor are jointly involved and the degree of importance of the individual markets to each 

Each industry is composed of various markets which can be subdivided into segments Example: Automobile industry Greater market commonality results in greater rivalry Firms may also compete against one another in several or many product and geographic markets o This is called multimarket competition Firms with greater multimarket contact are less likely to attack but more likely to respond when attacked o Thus, multimarket competition can reduce competitive rivalry o

  

Resource Similarity - Extent to which firm’s tangible/intangible resources are comparable to competitor’s in type and amount   

Can result in similar strengths and weaknesses and similar strategies being pursued The more similar the types and amounts of resources the more direct the competition is between two firms Similar resources = similar strategies

The combination of market commonality & resource similarity indicate who a firm’s direct and indirect competitors are.  

Firms in quadrant 1 (see Figure 5.3) are a firms most direct competitors Firms in quadrant 3 are a firms most indirect competitors



Strategic group mapping from Chapter 2 can also assist in the identification of a firms direct and indirect competitors

Drivers of Competitive Actions/Responses Market commonality and resource similarity influence three drivers of competitive behavior: 1. Awareness     

Extent competitors recognize degree of mutual interdependence that results from market commonality and resource similarity Greatest when firms have highly similar resources Is a prerequisite to any competitive behavior taken by a firm Affects the extent to which the firm understands the consequences of its competitive actions and responses A lack of awareness can lead to excessive competition

2. Motivation   

Firm's incentive to take action, or to respond to a competitor's attack, as it relates to perceived gains and losses A firm is more likely to attack a rival with whom it has low market commonality Attacked firms are more likely to respond when market commonality is high

3. Ability  

Firm's resources that allow competitive action and flexibility to respond Without available resources a firm lacks the ability to respond

Additional Factors of Attack and Response Factors Affecting the Likelihood of Attack First Mover Incentives 

A first mover is a firm that takes an initial competitive action to build or to defend its competitive advantages or to improve its market position

o

Firms can also be second movers or late movers

Organizational Size Affects the likelihood of competitive actions as well as the types and timing of them Small firms

   o o o   o o

More likely to launch competitive actions Are more flexible, nimble, and quicker Initiate a greater variety of competitive actions Large firms Initiate more competitive actions with more strategic actions during a given time period Tend to limit the types of competitive actions used

Quality 

Customer perception that the firm's goods or services perform in ways that are important to customers, meeting or exceeding their expectations o Lower quality = lower attack/response likelihood

Factors Affecting the Likelihood of Response Types and effectiveness of the competitive action 

Strategic actions Receive strategic responses Elicit fewer responses due to the resources committed Tactical actions o Receive tactical responses o Elicit much faster responses

o o 

Actor’s Reputation     

Actor: Firm taking an action or response (in the context of competitive rivalry) Reputation: positive or negative attribute ascribed by one rival to another based on past competitive behavior Firms are more likely to respond to market leaders Past behavior is also a useful predictor of future behavior firms are less likely to respond to a firm with a reputation for risky, complex, and unpredictable behavior

Dependence on the Market  

Extent to which a firm's revenues or profits are derived from a particular market High market dependence = more likely to respond

Competitive Dynamics: 3 Market Cycles

Definitions:

Competitors- firms operating in the same market, offering similar projects, and targeting similar customers. Competitive rivalry- is the ongoing set of competitive actions and competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position. Competitive behavior- the set of competitive actions and response a firm takes to build or defends its competitive advantages and to improve its market position. Multimarket competition- occurs when firms compete against each other in several products or geographic markets. Competitive dynamics- refer to all competitive behaviors-that is, the total set of actions and responses taken by all firms competing within market. Market commonality- is concerned with the number of markets with which the firm and a competitor are jointly involved and the degree of importance of the individual markets to each. Resource similarity-is the extend to which the firm’s tangible and intangible resources are comparable to a competitor’s in terms of both type and amount. Competitive action-is a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position. Competitive response- is a strategic or tactical action the firm takes to counter the effects of a competitor’s competitive action. Strategic action or strategic response is a market-base move that involves a significant commitment of organizational resources and is difficult to implement and reverse. Tactical action or a tactical response- is a market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse. First mover- is firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position. Second mover- a firm responds to the first mover’s competitive action, typically through imitation. Late mover-a firm that responds to a competitive action a significant amount of time after the first mover’s actions and the second move’s response. Quality- exists when the firm’s goods or services meet or exceed customers’ expectations. Slow-cycle markets -are markets in which the firm’s competitive advantages are shielded from imitations, commonly for long periods of time, and where imitation is costly. Fast-cycle markets-are markets in which the firm’s capabilities that contribute to competitive advantages aren’t shielded from imitation and where imitation is often rapid and inexpensive. Standard-cycle markets-are market in which the firm’s competitive advantages are partially shielded from imitation and imitation is moderately costly. Competitive blind spot- lacking info to predict competitive actions, potentially resulting in negative outcomes. Slack- the buffer or cushion provided by actual or obtainable resource’s that aren’t currently in use and are in excess of the minimum resources needed to produce a given level of organization output. Market dependence- denotes the extent to which a firm’s revenues or profits are derived from a particular market. SA1- Competitive dynamics refers to the: A. total set of actions and responses taken by all firms competing within a market. SA2- In general, firms are more aware of competitors who have similar resources and whoA. compete against the firm in multiple markets. SA3. Both ____ and ____ affect the awareness and motivation of a firm to undertake actions and responses. A. market commonality, resource similarity SA4. Which of the following is an example of a strategic action? A. entry into the European market by Home Depot SA5. First movers are -A. firms that take an initial competitive action. SA6. Quality is-

A. meeting or exceeding customer expectations in the goods and/or services offered. SA7. Which organization has the highest market dependence? A. a company that specializes in making replacement tiles for the space shuttle SA8. Goods or services in standard-cycle markets reflect A. organizations that serve a mass market. Q1. Competitive rivalry has the most effect on the firm's ________ strategy. A. business-level Q2. A firm in an industry with increasing competitive rivalry can expect: A. declining average profits in the industry. Q3. f the Mayo Clinic with its prestigious reputation decided to enter the long-term care industry with a national chain of nursing homes, the result would be: A.decreased average profitability in the industry. Q4. refers to the number of markets with which a firm and a competitor are jointly involved and the degree of importance of the individual markets to each firm. A. Market commonality Q5. Multimarket competition: A. in general makes competitive rivalry among firms less intense than otherwise. Q6. PepsiCo and Coca-Cola: A. have great market commonality. Q7. The definition of firms that are direct and mutually acknowledged competitors is that they have: A. high resource similarity and high market commonality. Q8. A firm that has fewer resources than the competitor who attacks it: A. will wait longer to respond than would a firm with more resources. Q9. If a firm makes the decision not to respond to a competitor's attack, it lacks: A. motivation. Q10. A lack of ________ can lead to excessive competition, resulting in a negative effect on all competitors' performance. A. awareness Q11. After doing research on the resurgence of patriotic feelings among Americans, a candy manufacturer has decided to market red, white, and blue versions of its basic candies for patriotic holidays. This is a: tactical action Q12. Competitors tend to respond more quickly to ________ than to ________. A. tactical actions, strategic actions Q13. GoneWest Cruise Lines is currently debating a change from its traditional leisure cruise itineraries to long-term living arrangements for people currently residing in assisted living facilities. For GoneWest, this is a: B. strategic action. Q14. The high degree of risk is the chief disadvantage of being a: A. first mover. Q15. GoneWest Cruise Lines is currently debating a change from its traditional leisure cruise itineraries to long term living arrangements for people currently residing in assisted living facilities. This would involve remodeling the ships to be handicapped accessible and providing adequate medical services. To make this change, GoneWest needs: A. organizational slack Q16. The CEO of ConsumerNomics, Inc., is content with her firm being a second mover because: A. ConsumerNomics is able to respond to first movers' competitive actions while avoiding the risks and development costs experienced by first movers. Q17. An advantage of being a small firm is: A. the flexibility to launch a large number of competitive actions. Q18. The ability to be a nimble and flexible competitor which can depend on speed and surprise to gain an advantageous market position is most frequently associated with: A. small organizations. Q19. Firms that produce products of poor quality: A. have little credibility with customers. Q20. Bushington Pulp and Paper, Inc., is aware that its main competitor, Mountain Paper Company, is having problems with poor quality in the products, especially the conformance to standards of fine quality papers that are used by magazine printers. Bushington can predict that Mountain Paper will: A. not take aggressive competitive actions until quality issues are resolved. Q21. Product quality is: A. necessary, but not sufficient, for strategic competitiveness in all markets. Q22. Which firm's competitive actions are most likely to elicit response and imitation by competitors? A firm that: A. is a market leader. Q23. A manufacturer that specializes exclusively in kayaks for sea-kayaking: A. is market dependent.

Q24. Ninety percent of total revenue for Loran Professional Staffing comes from placing temporary nursing staff in community hospitals in the Phoenix metropolitan area. This is an example of: A. market dependence Q25. Sustainable competitive advantage from proprietary resources is most likely to occur in ________ markets. A. slow-cycle Q26. Counterattacks by competitors in slow-cycle markets usually occur: A. when patents expire or are broken. Q27. When a successful new product is introduced in a fast-cycle market, customers can be fairly sure that: A. the product's price will fall quickly. Q28. Innovation affects ________ cycle markets the least. A. slow Q29. It would be counter-productive for a firm in a ________ market to be loyal to a product even if it is currently generating high profits. A. fast-cycle Q30. In a fast-cycle market the firm gains sustained competitive advantage by: by developing a series of temporary competitive advantages based on product innovations. Q1 On the whole there are more competitive responses to: A. tactical actions than to strategic actions. Q2. Firms with few competitive resources are more likely to: A. delay responding to competitive actions. Q3. Which of the following statements is FALSE? A. First movers have lower survival rates than second and late movers. Q4. A second mover: A. attempts to provide a product with greater customer value than the first mover's product. Q5. Ninety percent of Wm. Wrigley Company's total revenue comes from chewing gum. This is an example of: A.market dependence. Q6. Multimarket competition occurs when firms: A. compete against each other in several geographic or product markets. Q7. Which industry can be LEAST described as a slow cycle market? A. Cell phone provider Q8. ________ markets are often described as volatile and innovative. A. Fast-cycle Q9. All competitive advantages do not accrue to large-sized firms. A major advantage of smaller firms is that they: A. can launch competitive actions more quickly. Q10. Which PC maker has historically benefited the most from its reputation? A. IBM Q1. The term competitive dynamics refers to: A. the total set of actions and responses taken by all firms competing within a market. Q2. An increase in the competitive rivalry within an industry results in: A. a decrease in average profitability across the industry. Q3. Compared with firms that compete in only one market, among firms that face one another in multiple markets there is generally: A. a lower level of competitive rivalry. Q4. The larger the resources of a firm taking a competitive action compared with the resources of the other firms in the industry, the _______ the response will be of these other firms. A. slower Q5. Which of the following is an example of a tactical action? A. Starbucks opening a new store in a market they already serve. Q6. A first mover is: a firm that takes an initial competitive action. Q7. In comparison to large firms, a major advantage of smaller firms is that they: A. can launch competitive actions more quickly. Q8. A friend who owns a business says he would like his firm to achieve a sustained competitive advantage. Your most accurate response would be to indicate this is most achievable in a: A. slow-cycle market. Q9. Which industry is NOT a slow cycle market? A. cell phone provider Q10. Folger's Coffee recently launched a plastic container with a handgrip as a replacement to its traditional metal can. Which statement best summarizes this change? A. This is an incremental innovation typical of a standard-cycle market....