CHAPTER 5 - THE DYNAMICS OF COMPETITIVE RIVALRY
Learning Objectives
1. Understand the nature of competitive dynamics and rivalry in business.
2. Analyze global competition and its impact on competitive strategy.
3. Apply the model of competitive strategy to real-world scenarios.
4. Develop strategic and tactical responses to competitors’ actions.
5. Evaluate factors influencing rivals' likelihood of attack and response.
1. Competitive Dynamics
Definition
Competitive dynamics refer to the actions and responses among firms as they compete for
market position and profitability.
Competitive dynamics is the study of how companies interact with each other in a market.
It focuses on how companies respond to each other's actions and how they can gain or
maintain a competitive advantage.
Important feature
Market Commonality: is the degree to which a company and its competitor operate
in the same or overlapping markets.
Resource Similarity: Similarity in resources and capabilities.
Example
In the smartphone industry, Samsung and Apple compete intensely due to their
overlapping markets and comparable resources.
2. The Dynamics of Global Competition
Characteristics
1. Increased Interconnectivity: Global markets are highly integrated.
2. Cultural and Regulatory Diversity: Strategies must adapt to diverse
environments.
3. Innovation Race: Firms compete globally through constant innovation.
Illustration
The global automotive industry, with players like Toyota, Tesla, and Volkswagen,
showcases intense rivalry driven by innovation in electric vehicles.
3. The Model of Competitive Strategy
Components
1. Awareness: Recognizing competitor actions.
2. Motivation: Determining the desire to respond.
3. Capability: Assessing the ability to respond effectively.
Framework for Analysis
Step 1: Identify key competitors.
Step 2: Assess their strengths, weaknesses, and likely strategies.
Step 3: Formulate potential responses.
Activity
Analyze a recent competitive move by a leading company (e.g., Coca-Cola’s product
diversification) and predict its competitors’ potential responses.
4. Strategic Response to Competitor’s Action
Types of Strategic Responses
1. Market Entry or Exit: Entering or exiting specific markets. Market Entry" refers to
the process of a company introducing a new product or service into a market,
essentially entering a new space to compete, while "Market Exit" means a company
is withdrawing a product or service from a market, effectively leaving that market
segment behind; both actions significantly impact the dynamics of supply and
demand within that market.
2. Product Innovation: Developing new products or enhancing existing ones.
3. Strategic Alliances: Forming partnerships to strengthen market position.
Example
Netflix’s global expansion strategy prompted competitors like Amazon Prime to enhance
their global offerings.
5. Tactical Actions in Competitive Rivalry
Definition
Tactical actions are short-term moves aimed at achieving immediate advantages.
Examples
1. Pricing Changes: Offering discounts or adjusting prices.
2. Marketing Campaigns: Launching promotional campaigns.
3. Distribution Enhancements: Improving delivery speed or expanding channels.
Illustration
When a low-cost airline reduces ticket prices, competitors may respond with flash sales to
retain market share.
6. Factors Influencing the Likelihood of Rivals’ Attack
Key Factors
1. Market Dependence: Firms highly dependent on a specific market are more likely
to attack.
2. Resource Availability: Adequate resources enable firms to launch aggressive
actions.
3. Reputation: Firms with a history of aggression may be more likely to initiate
attacks.
Example
In the retail industry, Walmart’s significant market dependence drives frequent
competitive actions against rivals like Target.
7. The Dynamics of Rivals’ Responses
Factors Influencing Responses
1. Type of Action: Major strategic moves typically elicit stronger responses than
minor tactical actions.
2. Timing: Rapid responses can neutralize competitors’ advantages.
3. Capability: Resource-rich firms are better positioned to respond effectively.
Case Study
When PepsiCo introduced a new product line, Coca-Cola responded quickly with a
competing product and aggressive marketing.
Activities and Illustrations
Activity 1: Competitive Landscape Analysis
Choose a competitive industry (e.g., smartphones, fashion, or automobiles) and:
1. Identify major players.
2. Map their recent competitive moves.
3. Propose potential strategic and tactical responses for one firm.
Activity 2: Role-Playing Simulation
Form groups representing competing firms. Each group:
1. Develops a strategic action.
2. Observes and analyzes competitors’ actions.
3. Formulates a tactical or strategic response.
Illustration: Rivalry Cycle Diagram
A visual representation showing the cycle of action, response, and counter-response in a
competitive rivalry.
Conclusion
Understanding the dynamics of competitive rivalry equips firms with the tools to anticipate
competitors’ actions and craft effective strategies. By analyzing global competition,
applying strategic models, and responding tactically, firms can maintain their competitive
edge.
Discussion Questions
1. How does market commonality influence competitive dynamics?
2. What factors should firms consider when responding to competitors’ actions?
3. How can firms balance short-term tactical actions with long-term strategic moves?
Suggested Readings
Marcelo, D. F., Jr. Strategic Management. Porter, M. E. (1985). Competitive
Advantage: Creating and Sustaining Superior Performance. Free Press
