Competitors are firms competing in the same market,
offering similar products, and targeting similar customers.
Competitive rivalry is the ongoing set of competitive actions
and competitive responses occurring between competitors
as they compete against each other for an advantageous
market position. The outcomes of competitive rivalry influence
the firm’s ability to sustain its competitive advantages
as well as the level (average, below average, or above average)
of its financial returns.
• For the individual firm, the set of competitive actions and
responses it takes while engaged in competitive rivalry is
called competitive behavior. Competitive dynamics is the set
of actions and responses taken by all firms that are competitors
within a particular market.
• Firms study competitive rivalry in order to be able to
predict the competitive actions and responses that each of
their competitors likely will take. Competitive actions are
either strategic or tactical in nature. The firm takes competitive
actions to defend or build its competitive advantages
or to improve its market position. Competitive responses
are taken to counter the effects of a competitor’s competitive
action. A strategic action or a strategic response
requires a significant commitment of organizational
resources, is difficult to successfully implement, and is
difficult to reverse. In contrast, a tactical action or a tactical
response requires fewer organizational resources and is
easier to implement and reverse. For an airline company,
for example, entering major new markets is an example
of a strategic action or a strategic response; changing its
prices in a particular market is an example of a tactical action
or a tactical response.
• A competitor analysis is the first step the firm takes to be able
to predict its competitors’ actions and responses. In Chapter 2,
we discussed what firms do to understand competitors. This
discussion was extended in this chapter as we described what
the firm does to predict competitors’ market-based actions.
Thus, understanding precedes prediction. Market commonality
(the number of markets with which competitors are jointly
involved and their importance to each) and resource similarity
(how comparable competitors’ resources are in terms of type
and amount) are studied to complete a competitor analysis.
In general, the greater the market commonality and resource
similarity, the more firms acknowledge that they are direct
competitors.
• Market commonality and resource similarity shape
the firm’s awareness (the degree to which it and its
competitor understand their mutual interdependence),
motivation (the firm’s incentive to attack or respond), and
ability (the quality of the resources available to the firm to
attack and respond). Having knowledge of a competitor
in terms of these characteristics increases the quality of
the firm’s predictions about that competitor’s actions and
responses.
• In addition to market commonality and resource similarity
and awareness, motivation, and ability, three more specific
factors affect the likelihood a competitor will take competitive
actions. The first of these concerns first-mover incentives.
First movers, those taking an initial competitive action,
often earn above-average returns until competitors can successfully
respond to their action and gain loyal customers.
Not all firms can be first movers in that they may lack the
awareness, motivation, or ability required to engage in this
type of competitive behavior. Moreover, some firms prefer to
be a second mover (the firm responding to the first mover’s
action). One reason for this is that second movers, especially
those acting quickly, can successfully compete against the
first mover. By evaluating the first mover’s product, customers’
reactions to it, and the responses of other competitors
to the first mover, the second mover can avoid the early
entrant’s mistakes and find ways to improve upon the value
created for customers by the first mover’s good or service.
Late movers (those that respond a long time after the original
action was taken) commonly are lower performers and are
much less competitive.
• Organizational size, the second factor, tends to reduce
the variety of competitive actions that large firms launch
while it increases the variety of actions undertaken by
smaller competitors. Ideally, the firm would like to initiate a
large number of diverse actions when engaged in competitive
rivalry. The third factor, quality, is a base denominator
to successful competition in the global economy. It is a
necessary prerequisite to achieve competitive parity. It
is a necessary but insufficient condition for gaining an
advantage.
Competitors are firms competing in the same market,
offering similar products, and targeting similar customers.
Competitive rivalry is the ongoing set of competitive actions
and competitive responses occurring between competitors
as they compete against each other for an advantageous
market position. The outcomes of competitive rivalry influence
the firm’s ability to sustain its competitive advantages
as well as the level (average, below average, or above average)
of its financial returns.
• For the individual firm, the set of competitive actions and
responses it takes while engaged in competitive rivalry is
called competitive behavior. Competitive dynamics is the set
of actions and responses taken by all firms that are competitors
within a particular market.
• Firms study competitive rivalry in order to be able to
predict the competitive actions and responses that each of
their competitors likely will take. Competitive actions are
either strategic or tactical in nature. The firm takes competitive
actions to defend or build its competitive advantages
or to improve its market position. Competitive responses
are taken to counter the effects of a competitor’s competitive
action. A strategic action or a strategic response
requires a significant commitment of organizational
resources, is difficult to successfully implement, and is
difficult to reverse. In contrast, a tactical action or a tactical
response requires fewer organizational resources and is
easier to implement and reverse. For an airline company,
for example, entering major new markets is an example
of a strategic action or a strategic response; changing its
prices in a particular market is an example of a tactical action
or a tactical response.
• A competitor analysis is the first step the firm takes to be able
to predict its competitors’ actions and responses. In Chapter 2,
we discussed what firms do to understand competitors. This
discussion was extended in this chapter as we described what
the firm does to predict competitors’ market-based actions.
Thus, understanding precedes prediction. Market commonality
(the number of markets with which competitors are jointly
involved and their importance to each) and resource similarity
(how comparable competitors’ resources are in terms of type
and amount) are studied to complete a competitor analysis.
In general, the greater the market commonality and resource
similarity, the more firms acknowledge that they are direct
competitors.
• Market commonality and resource similarity shape
the firm’s awareness (the degree to which it and its
competitor understand their mutual interdependence),
motivation (the firm’s incentive to attack or respond), and
ability (the quality of the resources available to the firm to
attack and respond). Having knowledge of a competitor
in terms of these characteristics increases the quality of
the firm’s predictions about that competitor’s actions and
responses.
• In addition to market commonality and resource similarity
and awareness, motivation, and ability, three more specific
factors affect the likelihood a competitor will take competitive
actions. The first of these concerns first-mover incentives.
First movers, those taking an initial competitive action,
often earn above-average returns until competitors can successfully
respond to their action and gain loyal customers.
Not all firms can be first movers in that they may lack the
awareness, motivation, or ability required to engage in this
type of competitive behavior. Moreover, some firms prefer to
be a second mover (the firm responding to the first mover’s
action). One reason for this is that second movers, especially
those acting quickly, can successfully compete against the
first mover. By evaluating the first mover’s product, customers’
reactions to it, and the responses of other competitors
to the first mover, the second mover can avoid the early
entrant’s mistakes and find ways to improve upon the value
created for customers by the first mover’s good or service.
Late movers (those that respond a long time after the original
action was taken) commonly are lower performers and are
much less competitive.
• Organizational size, the second factor, tends to reduce
the variety of competitive actions that large firms launch
while it increases the variety of actions undertaken by
smaller competitors. Ideally, the firm would like to initiate a
large number of diverse actions when engaged in competitive
rivalry. The third factor, quality, is a base denominator
to successful competition in the global economy. It is a
necessary prerequisite to achieve competitive parity. It
is a necessary but insufficient condition for gaining an
advantage.
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