Chapter-5

The Competitive Nature of

Strategy
Definitions
• Competitors
 Firms operating in the same market, offering similar
products and targeting similar customers.

• Competitive Rivalry
 The ongoing set of competitive actions and responses
occurring between competitors.
 Competitive rivalry influences an individual firm’s
ability to gain and sustain competitive advantages.

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Definitions
• Competitive Behavior
 The set of competitive actions and competitive
responses the firm takes to build or defend its
competitive advantages and to improve its market
position.
• Multimarket Competition
 Firms competing against each other in several
product or geographic markets.
• Competitive Dynamics
 The total set of actions and responses taken by all
firms competing within a market.

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Figure 5.1 From Competitors to Competitive Dynamics

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FIGURE 5.2 A Model of Competitive Rivalry

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Competitor Analysis
• Competitor analysis is used to help a firm
understand its competitors.
• The firm studies competitors’ future objectives,
current strategies, assumptions, and capabilities.
• With the analysis, a firm is better able to predict
competitors’ behaviors when forming its
competitive actions and responses.

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Market Commonality
• Market commonality is concerned with:
 The number of markets with which a firm and a
competitor are jointly involved.
 The degree of importance of the individual markets to
each competitor.
• Firms competing against one another in several
or many markets engage in multimarket
competition.
 A firm with greater multimarket contact is less likely to
initiate an attack, but more likely to more respond
aggressively when attacked.

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Resource Similarity
• Resource Similarity
 How comparable the firm’s tangible and intangible
resources are to a competitor’s in terms of both types
and amounts.
• Firms with similar types and amounts of
resources are likely to:
 Have similar strengths and weaknesses.
 Use similar strategies.
• Assessing resource similarity can be difficult if
critical resources are intangible rather than
tangible.

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Drivers of Competitive Behavior
• Awareness: Awareness is
 the extent to which competitors recognize the degree
of their mutual interdependence that results from:
• Market commonality
• Resource similarity
• Motivation: Motivation concerns
 the firm’s incentive to take action, or
 to respond to a competitor’s attack, and
 relates to perceived gains and losses

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• Ability: Ability relates to
 each firm’s resources
 the flexibility these resources provide
• Without available resources the firm lacks the ability to
 attack a competitor
 respond to the competitor’s actions

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 Resource Dissimilarity
• A firm is more likely to attack
Market Commonality

the rival with whom it has low • The greater the resource
imbalance between the acting
market commonality than the
firm and competitors or potential
one with whom it competes in responders, the greater will be
multiple markets. the delay in response by the firm
• Given the strong competition with a resource disadvantage.
under market commonality, it is • When facing competitors with
likely that the attacked firm will greater resources or more
respond to its competitor’s attractive market positions, firms
action in an effort to protect its should eventually respond, no
matter how challenging the
position in one or more
response
markets.

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Competitive Rivalry
• 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.

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Strategic and Tactical Actions
• Strategic Action (or Response)
 A market-based move that involves a significant
commitment of organizational 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.

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Interfirm Rivarly
Interfirm rivalry involves
•Likelihood of attack
•Likelihood of response
Factors affecting likelihood of attack
First mover incentives
Organizational size
Quality (Product/service)

© 2007 Thomson/South-Western. All rights reserved. 5–14

Factors Affecting Likelihood of Response
 Type of competitive action
 Reputation
 Market dependence

© 2007 Thomson/South-Western. All rights reserved. 5–15

Competitive Dynamics versus Rivalry
• Competitive Dynamics
Ongoing actions and responses taking place
between all firms competing within a market
for advantageous positions.
• Competitive Rivalry
Ongoing actions and responses taking place
between an individual firm and its
competitors for advantageous market
position.

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Competitive Dynamics versus Rivalry (cont’d)
• Competitive Rivalry • Competitive Dynamics
(Individual firms) (All firms)
 Market commonality  Market speed (slow-
and resource similarity cycle, fast-cycle, and
standard-cycle
 Awareness, motivation
and ability  Effects of market
speed on actions and
 First mover incentives,
responses of all
size and quality
competitors in the
market

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Competitive Dynamics
• Competitive advantages are
Slow-Cycle
Markets protected from imitation for long
periods of time and imitation is
costly.
• Competitive advantages are
sustainable in slow-cycle markets.
• All firms concentrate on competitive
actions and responses to protect,
maintain and extend proprietary
competitive advantage.
• Example: Mickey Mouse , Mini
Mouse, Goofy as cartton character.

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Competitive Dynamics (cont’d)
• The firm’s competitive advantages
aren’t protected from imitation.
• Imitation happens quickly and
somewhat expensively
Fast-Cycle • Competitive advantages aren’t
Markets sustainable.
 Competitors use reverse engineering to
quickly imitate or improve on the firm’s
products
• Non-proprietary technology is
diffused(spread) rapidly
• Example: Micro-processor, cellular
phone

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Competitive Dynamics (cont’d)
• Moderate cost of imitation may
protect competitive advantages.
• Competitive advantages are
partially sustainable if their quality
is continuously upgraded.
• Firms
 Seek large market shares
Standard-Cycle
 Gain customer loyalty through brand
Markets
names
 Carefully control operations
Example: Candy Product

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