PART III
CREATING COMPETITIVE ADVANTAGE
Chapter 6
Competitive Rivalry and
Competitive Dynamics
1




Dramatic increase in competitive actions and reactions
between firms
Decreased decision making time
Increased speed of new ideas and products
Soaring speed at which knowledge “pulses” between
competitors
Fast firms generate advantages and market power.
Faster firms generate more advantages and greater market power.

Key Terms

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

Key Terms

Competitive behavior
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 taken by all firms
competing within a market

Multimarket competition
Firms competing against each other in several
product or geographic markets

The total number of competitors

Market characteristics

Quality of individual firms' strategies

Drivers of competitive behavior
 Market
Commonality
 Resource
Similarity
Firms with high market commonality and
highly similar resources are clearly direct
and mutually acknowledged competitors.

Key Terms

Market commonality
Number of markets with which the firm
and a competitor are jointly involved and
the degree of importance of the individual
markets to each

Key Terms

Resource similarity
Extent to which the firm's tangible and
intangible resources are comparable to
competitors' resources in terms of both
type and amount
Awareness
 Motivation
 Ability
 Resource
Dissimilarity


Key Terms

Competitive action
Strategic or tactical action the 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 the
effects of a competitor's action

Tactical action (or response)
Market-based move that is taken to fine-tune a strategy


Strategic actions/responses are marketbased moves that signify a significant
commitment of organizational resources to
pursue a specific strategy. They are difficult
to implement and reverse.
Tactical actions/responses are market-based
moves that are taken to fine-tune a strategy
that is already in place, involving fewer
resources. They are relatively easy to
implement and reverse.

First mover incentives

Organizational size

Quality

Key Terms

First mover
Firm that takes an initial competitive action to build or to
defend its competitive advantages or to improve its market
position

Second mover
Firm that responds to the first mover's competitive action,
typically through imitation

Late mover
Firm that responds to a competitive action, but only after
considerable time has elapsed after the first mover's action
and the second mover's response




Often build upon a strategic foundation of
superior research and development skills
Tend to be aggressive and willing to
experiment with innovation
Tend to take higher, yet reasonable, risks
Need to have liquid resources that can be
quickly allocated to support actions

Competitive advantage

Above-average returns

Customer loyalty

Industry standards

Market share



Difficulty to accurately estimate
potential returns
Substantial costs of product innovation,
which reduces organizational slack
available for other opportunities
Low likelihood of introducing or
converting to the product that
eventually becomes the dominant
design or industry standard as the
market evolves





More cautious than first movers
Tend to study customer reactions to product
innovations
Tend to learn from the mistakes and avoid the
large investments required of first movers,
reducing their risks
Can take advantage of time to develop more
efficient processes and technologies than first
movers, reducing their costs
Will not benefit from first mover advantages,
lowering potential returns


Respond to market opportunities
only after considerable time has
elapsed after first and second
movers, substantially reducing risks
and returns
Typically, a late response is better
than no response at all

Small firms

Nimble and flexible competitors

Rely on speed and surprise to defend
their competitive advantage

Greater variety of competitive behavior
options available

Large firms

Often have greater slack

Greater likelihood to initiate competitive
and strategic actions over time

Tend to rely on a limited variety of
competitive actions, which can
ultimately reduce their competitive
success

Key Terms

Quality
Customer perception that the firm's goods or
services perform in ways that are important
to the customer to meet or exceed their
expectations

Types of competitive action

Actor’s reputation

Dependence on the market

Competitive dynamics





Strategic actions elicit different responses than
tactical actions.
Strategic actions generally elicit strategic
responses.
Tactical actions generally elicit tactical responses.
Strategic actions elicit fewer total competitive
responses.
Actions that target a large number of a rival’s
customers are likely to elicit strong responses.

Key Terms

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

Key Terms

Market dependence
Extent to which a firm's revenues or
profits are derived from a particular
market

Slow-cycle markets

Fast-cycle markets

Standard-cycle markets

Key Terms

Slow-cycle markets
Markets in which the firm's competitive
advantages are shielded from imitation
for what are commonly long periods of
time and where imitation is costly


One-of-a-kind proprietary
competitive advantage
Orient competitive behavior
to protecting, maintaining,
and extending that
advantage

Key Terms

Fast-cycle markets
Markets in which the firm's capabilities that
contribute to competitive advantages are not
shielded from imitation and where imitation
is often rapid and inexpensive

Complex and rapid strategic
decisions

Relatively easy imitation

Unprotected technology

High volatility



Rapid and continuous development
of new competitive advantages –
innovation
Temporary competitive advantage
Avoid loyalty to products – willingly
cannibalize own products

Key Terms

Standard-cycle markets
Markets in which the firm's competitive
advantages are moderately shielded from
imitation and where imitation is moderately
costly




Continuously upgrade quality
Serve many customers and gain a
large market share
Gain customer loyalty through
brand names
Deliver consistent customer
experiences
When competing against one another,
firms jockey for a market position that is
advantageous, relative to competitors.
In this jockeying, what are the ethical
implications associated with the way
competitor intelligence is gathered?
Second movers often respond to a first
mover’s competitive actions through
imitation. Is there anything unethical
about a company imitating a
competitor’s good or service as a means
of engaging in competition?
The standards for competitive rivalry
differ in countries throughout the world.
What should firms do to cope with these
differences? What guidance should a
firm give to employees as they deal with
competitive actions and competitive
responses that are ethical in one country
but unethical in others?
In slow-cycle markets, effective competitors
are able to shield their competitive
advantages from imitation by competitors for
relatively long periods of time. However, this
is not the case in fast-cycle markets. Do these
conditions have implications in terms of
ethical business practices? Do ethical
standards in slow-cycle markets differ from
those in fast-cycle markets?
Is it ethical for the firm competing
against a competitor in several markets
to launch a competitive response in a
market that differs from the one in which
that competitor took a competitive action
against the local firm? Why or why not?