WCOB 3016 Exam 2 Study Guide Chapter 5 Competitive Rivalry Competitive Dynamics Competitors engage in competitive rivalry to gain an advantageous position They go about this in competitive behaviors competitive actions and responses and all of this results in competitive dynamics Competitors firms operating in the same market offering similar products and targeting similar customers examples could include the competition between American Eagle and Abercrombie Fitch Multimarket Competition when firms compete against one another in many different product and geographic markets Apple versus Google 3 Levels Competitive Behavior individual level or single firm competitive actions or responses a firm will take and create or defend its competitive advantages and to improve market position The goal in this level is for a firm to position itself relative to the 5 Forces of Competition Competitive Rivalry dyad level the continuous combination of competitive actions and responses among firms as they drive for an advantageous position in the market its dominant influence is on a firms business level strategy or strategies seeing that firms actions and responses to their rivals is part of the basic building blocks of business level strategy Competitive Dynamics population market level refers to all competitive behavior in that this is the total ongoing set of actions and responses taken by all firms within a market in the goal of obtaining an advantageous position Attacks help to determine the strategy success of a firm in not only their initial competitive actions but also in how they anticipate the competitive responses and by how well the firm anticipates responses to its competitors initial actions Competitive Action strategic or tactical action a firm will take in creating or defending its competitive Competitive Response strategic or tactical action a firm will take to attempt in curbing the effects of a advantages or improve its market position competitor s competitive action Strategic Actions responses long term market based movement that involves a lot of commitment of organizational resources and is difficult to implement or reverse Tactical Actions response day to day market based movements and decisions that involve few resources and are typically easy to implement or reverse Success of a Strategy depends on being able to initiate competitive actions anticipate competitors actions and responses and be able to respond to the competitors actions Since firms in reality are mutually interdependent and are affected upon each other through actions and responses market place success is then a function of how firms use individual strategies and their consequences with them in use Firms must UNDERSTAND their competitor first in order to better predict their actions strategies Competitor Analysis future objectives and capabilities 1 Market Commonality o Definition the number of markets in which a firm and a competitor are jointly involved and the degree of importance of the individual markets to each o Greater multimarket contact within a firm will elicit a less likely chance of them initiating an attack but will more likely move respond aggressively when attacked o Multimarket competition reduces competitive rivalry but some firms will still compete when they see a perceived gain from the situation 2 Resource Similarity o Definition comparable tangible and intangible resources between competitors in terms of both o Firms with resource similarity are more likely to have similar strengths and weaknesses as well type and amount as strategies tactical or strategic Drivers of Competitive Behavior o Market commonality and resource similarity work to influence the following drivers of competitive behavior 1 Awareness o Definition competitor recognition of the degree of their mutual interdependence that results from market commonality and resource similarity which when both are high this increases awareness o Awareness is the first step taken by any firm in the terms of competitive actions or responses o Provides firms with an understanding of the consequences of their competitive actions and responses and if the firm lacks awareness within this it could result in excessive competition 2 Motivation a perceived gain or loss o Definition the desire a firm holds in taking action or responding to a competitors attack to obtain o If two competing firms are high in market commonality motivation is likely to decrease in that it may result in dramatic consequences battles across markets loss of core market focus and the allocation of resources to non core activities though all of this can increase motivation in responding to an attack o Firms would prefer to attack a rival that has low market commonality 3 Ability o Definition concerned with each of the firms resources and the flexibility provided within them o Any firm would ideally attack a targeted firm but if your firm does not possess the available resources needed they physically cannot do anything o Resource Dissimilarity the greater the resource imbalance between the acting firm and competitors and potential responders the greater the delay in response will be Dissimilarity reduces the ability for a disadvantaged firm to attack Firms will EVENTUALLY and typically respond no matter how difficult the situation because choosing not to respond can result in major failure Through strategic and tactical actions the likelihood of attack is connected with market commonality Likelihood of Attack awareness motivation and ability 1 First Mover Incentives Definition a firm who takes initial competitive action in the hopes to build or defend its competitive advantage or improve position in the market First movers have to allocate many of their funds among product innovation and development aggressive advertising and advanced research and development A possible advantage for a first mover is that not only can they obtain loyalty of customers who can become committed to the goods and services of the firm making them first available but also their market share can be difficult for competitors to take and use during future competitive rivalry Slack the fall back cushion provided by the actual or obtainable resources that are not currently in use and are in excess of the minimum resources needed to produce a given level of organizational output gives a company ability Slack is a liquid resource that can be quickly allocated to support R D investments and