CHAPTER 11
Competitive Interaction
ADDED TOOLS FOR EXTERNAL
ANALYSIS
•
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Strategic Group Map
Mobility Barriers
Strategy Canvas
Competitive Response Profile
Principles of Competitive Advantage
KNOWING THE COMPETITION
1
Understand the competitive landscape
2
Evaluate the competition
3
Beat the competition
4
Understand the market structure and
competitive environment
UNDERSTANDING THE COMPETITIVE
LANDSCAPE
• Identify strategic groups and mobility
barriers
– Understand structure of competitive
environment
– Direct and indirect competitive groups within
an industry should not be ignored
STRATEGIC GROUP ANALYSIS
• Identify main differences in the ways firms
in the industry compete (low-cost vs. fullfare airlines with a Strategic Group Map
– Determine most relevant factors for horizontal
and vertical axes
– Score industry players on chosen factors and
plot on chart
– Clusters represent strategic groups
STRATEGIC GROUP MAP—PLOT INDUSTRY
PLAYERS
STRATEGIC GROUP MAP—IDENTIFY INDUSTRY
CLUSTERS
BARRIERS TO MOBILITY
• Switching strategic groups is difficult
because it is hard and slow to reconfigure
activities or activity systems
– This inability to jump between groups is
known as a barrier to mobility
STRATEGIC GROUP ANALYSIS
• A strategic group map can reveal
important potential changes in an industry
– e.g. are companies in one group beginning to
appeal to the primary markets of another?
• Are there empty spaces on the strategic
group map that might invite successful
entry?
STRATEGY CANVAS
• Assess relative
strengths and
weaknesses against
specific customer
purchase criteria
– Uncover how companies
attempt to offer unique
value to customers
relative to competitors
• Identify new ways to
compete with rivals
KNOWING THE COMPETITION
1
Understand the competitive landscape
2
Evaluate the competition
3
Beat the competition
4
Understand the market structure and
competitive environment
EVALUATING THE COMPETITION
• Examine motives and likely behavior of
individual competitors
– Use analysis to identify your own competitive
moves which bring most advantageous effect
• Evaluate competition by developing a
competitor response profile which
identifies characteristics of a competitor to
assess likely responses to rival actions
COMPETITOR RESPONSE PROFILE
1. “What drives the competitor?”
–
Objectives and undergirding assumptions which
point to potential rival moves
2. “What is the competitor doing or capable of
doing?”
–
Competitor’s strategy, resources, and capabilities
3. “How will the competitor respond to specific
moves?”
DELTA COMPETITOR RESPONSE PROFILE
• To leverage the benefits of
international scale for
overall cost savings
• To capture a greater share
of market b providing home
city to destination travel for
international passengers
• Passengers want to fly the same
airline domestically and
internationally
• Scale savings exist by having a
global footprint which permits
competitive pricing on
international routes
Delta
• Delta is likely to
largely ignore entry
into its international
city-pair markets by
Southwest as long
as these entries
remain few
• Position as an international
travel choice to as many
customers as possible by
building an extensive travel
network
• Locations in major cities
• Airline partners that provide global
reach
• Fleet of large aircraft
• Reliable and service-oriented
travel
KNOWING THE COMPETITION
1
Understand the competitive landscape
2
Evaluate the competition
3
Beat the competition
4
Understand the market structure and
competitive environment
HOW TO BEAT THE COMPETITION
Four Principles for Identifying Potential
Competitive Moves:
1.
2.
3.
4.
Know your strengths and weaknesses
Bring strength against weakness
Protect and neutralize vulnerabilities
Develop strategies that cannot be easily
imitated or copied (go where the competitor is
not)
KNOW YOUR STRENGTHS AND
WEAKNESSES
Strengths:
Resources and
capabilities that deliver
unique value
Weaknesses:
Resources and
capabilities subject to
rapid obsolescence, easy
imitation, or high costs not
recouped by value
A careful assessment of strengths and weaknesses form
the foundation of competitive strategy
KNOW YOUR STRENGTHS AND WEAKNESSES
• Target strengths against competitors'
weaknesses for greatest competitive effect
• Example: Google leveraging software
engineering strength to develop the
Android operating system, helping it grab
smartphone market share from Microsoft
PROTECT AND NEUTRALIZE VULNERABILITIES
• Strengthen or neutralize weaknesses
• Starbucks protected its atmosphere by
surrounding it with a large variety of great
tasting coffee blends, food items, store
convenience, and brand positioning
DEVELOP STRATEGIES THAT CANNOT BE
EASILY COPIED
“To be certain to take what you attack is to attack a
place the enemy does not protect.” –Sun Tzu
• Avoid missing new opportunities by only copying
moves by competitors
– companies often fail to see how they could do
something altogether different.
• Competitors may occupy distinctive positions in
their market so that they can profitably coexist
KNOWING THE COMPETITION
1
Understand the competitive landscape
2
Evaluate the competition
3
Beat the competition
4
Understand the market structure and
competitive environment
UNDERSTANDING MARKET STRUCTURE AND
THE COMPETITIVE ENVIRONMENT
• A firm’s circumstances define which
competitive actions are available and likely
to be effective
• Understanding the market context creates
the scope for competitive action
TWO TYPES OF MARKET ENVIRONMENTS
Stable
Set of competitors faced
by a firm, the supporting
technologies, and the
environmental factors are
changing slowly
Dynamic
Rapid product releases,
new entrants, or market
consolidations which affect
the shape of the industry
STRATEGIC RESPONSES IN STABLE ENVIRONMENTS
Monopoly
A market of one firm or
Description
one highly dominant firm
Important
Considerations
Reinforce the monopoly
Raise barriers to entry
Strategic
Moves
Limit competitive access
to scarce resources
Innovate and Patent
Introduce new products
frequently
Oligopoly
A market of a few firms
(2-5) which monitor and
react to specific rival
behavior
Make moves carefully
because rivals will detect
their moves and respond
accordingly (tit-for-tat)
Monitor and mimic rival
behavior
Employ tit-for-tat
strategies (Take most
beneficial action, while
expecting competition to
do the same. If a
competitor defects,
respond aggressively)
Perfect Competition
A market with many
firms
Firms are price takers
rather than price setters
Homogeneous goods
Merge or consolidate
markets (to increase
bargaining power)
Pursue a low cost
strategy
Pursue a differentiation
strategy
Create switching costs
STRATEGIC RESPONSES IN A DYNAMIC
ENVIRONMENT
Reconfigure processes and capabilities to
emphasize innovation and speed
Seek Transient Advantage
SUMMARY AND TAKEAWAYS
• Understanding the competitive landscape can help a
firm identify strategic groups and potential areas for
opportunities
• Developing a competitive response profile allows a
company to examine areas for opportunities and
assess possible responses to rival actions
• A company can beat the competition by identifying its
strengths and weaknesses, bringing strengths
against competitors’ weaknesses, neutralizing its own
vulnerabilities, and developing strategies that cannot
be easily imitated or copied
• Understanding the market structure may influence
the strategies a firm might employ