5-2
COMPETITOR ANALYSIS
As previously noted, a competitor analysis is the first step the firm takes to be able to
predict the extent and nature of its rivalry with each competitor. The number of markets in which
firms compete against each other (called market commonality, defined on the following pages)
and the similarity in their resources (called resource similarity, also defined in the following
section) determine the extent to which the firms are competitors. Firms with high market
commonality and highly similar resources are clearly direct and mutually acknowledged
competitors.
5-2a Market Commonality
Each industry is composed of various markets. Competitors tend to agree about the
different characteristics of individual markets that form an industry. Firms sometimes compete
against each other in several markets that are in different industries. As such these competitors
interact with each other several times, a condition called market commonality. More formally,
market commonality is concerned with the number of markets with which the firm and a
competitor are jointly involved and the degree of importance of the individual markets to each.
5-2b Resource Similarity
Resource similarity is the extent to which the firms tangible and intangible resources are
comparable to a competitors in terms of both type and amount. Firms with similar types and
amounts of resources are likely to have similar strengths and weaknesses and use similar
strategies.
5-3
5-4
COMPETITIVE RIVALRY
The ongoing competitive action/response sequence between a firm and a competitor affects
the performance of both firms; thus it is important for companies to carefully analyze and
understand the competitive rivalry present in the markets they serve to select and implement
successful strategies. Understanding a competitors awareness, motivation, and ability helps the
firm to predict the likelihood of an attack by that competitor and the probability that a competitor
will respond to actions taken against it
5-4a Strategic and Tactical Actions
Firms use both strategic and tactical actions when forming their competitive actions and
competitive responses in the course of engaging in competitive rivalry. A competitive action is a
strategic or tactical action the firm takes to build or defend its competitive advantages or improve
its market position. A competitive response is a strategic or tactical action the firm takes to
counter the effects of a competitors competitive action. A strategic action or a strategic
response is a market-based move that involve a significant commitment of organizational
resources and is difficult to implement and reverse. A tactical action or a tactical response is a
market-based move that is taken to fine-tune a strategy; it involves fewer resources and is
relatively easy to implement and reverse.
When engaging rivals in competition, firms must recognize the differences between
strategic and tactical actions and responses and should develop an effective balance between the
two types of competitive actions and responses.
5-5
LIKELIHOOD OF ATTACK
In addition to market commonality, resource similarity, and the drivers of awareness,
motivation, and ability, other factors affect the likelihood a competitor will use strategic actions
and tactical actions to attack its competitors.
5-5a First-Mover Incentives
A first mover is a firm that takes an initial competitive action in order to build or defend its
competitive advantages or to improve its market position. In general, first movers allocate funds
for product innovation and development, aggressive advertising, and advanced research and
development.
In addition to earning above-average returns until its competitors respond to its successful
competitive action, the first mover can gain (1) the loyalty of customers who may become
committed to the goods or services of the firm that first made them available, and (2) market
share that can be difficult for competitors to take during future competitive rivalry.
A second mover is a firm that responds to the first movers competitive action, typically
through imitation. More cautious than the first mover, the second mover studies customers
reactions to product innovations. Second movers also have the time to develop processes and
technologies that are more efficient than those used by the first mover or that create additional
value for consumers.
A late mover is a firm that responds to a competitive action a significant amount of time
after the first movers action and the second movers response. However, on occasion, late
movers can be successful if they develop a unique way to enter the market and compete.
responses, such as market-based moves, involve a significant commitment of resources and are
difficult to implement and reverse. Another reason that strategic actions elicit fewer responses
than do tactical actions is that the time needed to implement a strategic action and to assess its
effectiveness can delay the competitors response to that action.
5-6b Actors Reputation
In the context of competitive rivalry, an actor is the firm taking an action or a response
while reputation is the positive or negative attribute ascribed by one rival to another based on
past competitive behaviour. A positive reputation may be a source of above-average returns,
especially for consumer goods producers. Thus, a positive corporate reputation is of strategic
value and affects competitive rivalry. To predict the likelihood of a competitors response to a
current or planned action, firms evaluate the responses that the competitor has taken previously
when attacked past behaviour is assumed to be a predictor of future behaviour.
5.6c Market Dependence
Market dependence denotes the extent to which a firms revenues or profits are derived
from a particular market. In general, competitors with high market dependence are likely to
respond strongly to attacks threatening their market position.
5-7 COMPETITIVE DYNAMICS
Competitive dynamics concerns the ongoing actions and responses among all firms
competing within a market for advantageous position. To explain competitive dynamics, we
explore the effects of varying rates of competitive speed in different markets (called slow-cycle,
fast-cycle, and standard-cycle markets) on behaviour (actions and responses) of all competitors
within a given market.
5-7a Slow-Cycle Markets
Slow-cycle markets are markets which the firms competitive advantages are shielded from
imitation, commonly for long periods of time, and where imitation is costly. Thus, competitive
advantages are sustainable over longer periods of time in slow-cycle markets.
5-7b Fast-Cycle Markets
Fast-cycle markets are markets in which the firms capabilities that contribute to
competitive advantages arent shielded from imitation where imitation is often rapind and
inexpensive. Thus, competitive advantages arent sustainable in fast-cycle markets. Innovation
plays a critical role in the competitive dynamics in fast-cycle markets.
5-7c Standard-Cycle Markets
Standard-cycle markets are markets in which the firms competitive advantages are
partially shielded from imitation and imitation is moderately costly. Competitive advantages are
partially sustainable in standard-cycle markets, but only when the firm is able to continuously
upgrade the quality of its capabilities as a foundation for being able to stay ahead of competitors.
The competitive actions and responses in standard-cycle markets are designed to seek large
market shares, to gain customer loyalty through brand names, and to carefully control a firms
operations in order to consistently provide the same positive experience for customers.