competitive rivalry and competitive advantage

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  • 8/3/2019 Competitive Rivalry and Competitive Advantage

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    Competitors are firms operating in the same

    market, offering similar products and targetingsimilar customers for instance Coca Cola andPepsi. Decisions taken by a firm about whotheir competitors will be and especially howthey will compete against their rivals have animportant effect on their ability to earn aboveaverage returns.

    The ongoing set of competitive actions andresponses occurring between competitors asthey compete against each other for anadvantageous market position.

    Rivalry influences an individual firms abilityto gain and sustain competitive advantages.

    A set of competitive actions and competitiveresponses the firm takes to build or defend itscompetitive advantages and to improve itsmarket position.

    This is a situation where firms compete againsteach other in several products or geographicalmarkets

    This means all competitive behaviour. Theseare the total set of actions and responses takenby all firms competing within a market.

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    Rivalry at a firm level should be studied

    because it is the competitive actions andresponses a firm takes that are the foundationof successfully building and using itscompetitive strategies to gain an advantageousmarket position.

    Market Commonality

    Each Industry is composed of various marketsfor instance financial services comprise ofbrokerage services, banks and insurance. Eachmarket serves different customer groups, forexample the insurance market can be dividedinto commercial and consumer segments;product segment-health & life insurance;geographic segments-East Africa and SouthEast Asia.

    Resource similarity

    This is the extent to which firms tangible andintangible resources are comparable to acompetitor in terms of amount and type. Firmswith similar types and amounts are likely tohave similar strengths and weaknesses andalso use similar strategies

    A) Awareness

    This refers to the extent to which competitorsrecognize the degree of their mutualinterdependence that results from marketcommonality and resource similarity

    B) Motivation

    Concerns the firms action to respond to acompetitors attack, relates to perceived gains

    and losses. A firm may be aware of competitorsbut may not be motivated to engage in rivalrywith them if it perceives that its position willnot improve

    Ability

    This relates to each firms resources and theflexibility they provide. Without the available

    resources which include financial capital andpeople, the firm lacks ability to attack itscompetitors. When a firm faces a competitorwith similar resources, a careful study shouldbe done before attack

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    A first mover is a firm that takes an initial

    competitive action in order to build or defendits competitive advantages or to improve itsmarket position. This concept was influencedby Joseph Schumpeter who argued that firmsachieve competitive advantage by takinginnovative actions.

    This is a firm that responds to the first movers

    competitive action typically through imitation.The second mover is usually more cautiousthan the first mover. The second mover studiesactions of the first mover and avoids itsmistakes. The second mover has time todevelop processes and technologies that aremore efficient than the first movers. They alsoprovide a greater customer value than the firstmover.

    This describes a firm that responds tocompetitive action much later than the first andsecond movers action and response. Successachieved is usually less than the other movers.

    The size of a firm determines its competitiveactions as well as the time it acts. Small firmstend to launch competitive actions faster thanlarge firms. Small firms are considered moreflexible than large ones since they rely on speedto defend their competitive advantages

    This refers to when a firms goods or servicesexceed customer expectations.

    Customer perspective- Quality is doing the

    right things relative to performance measuresthat are important to them

    Performance

    Features

    Flexibility

    Aesthetics

    Durability

    Conformance

    Serviceability

    Perceived quality

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    Timeliness

    Courtesy Consistence

    Convenience

    Completeness

    Accuracy

    Type of Competitive Action

    Actors Reputation Dependence on the Market

    Are those in which the firms competitiveadvantages are shielded from imitationcommonly for long periods of time and whereimitation is costly.

    These competitive advantages are sustainablein slow cycle markets

    Are markets in which the firms capabilitiesthat contribute to competitive advantages arenot shielded from imitation and whereimitation is rapid and inexpensive?

    Speed is very important in this market

    These are markets where firms competitiveadvantages are moderately shielded fromimitation and imitation is moderately costly.

    Comparative advantage is partially substantialin Standard Cycle Markets but only when thefirm is able to make comparative advantagesdynamic. These Standard cycle Marketscompetitive actions and responses are designedto seek large market shares, gain customerloyalty through brand names and control firmsoperations

    Miles and Snows adaptive strategies

    Abells business definition framework

    Porters generic competitive strategies

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    Prospector strategy

    Defender strategy Analyzer strategy

    Reactor strategy

    According to Abell, a business can be defined

    in three dimensions: (1) customer groups- whowe are going to serve, (2) customer needs-what customers need we are attempting tomeet; and (3) technologies or distinctivecompetencies- how we are going to meet thatneed

    Modern Approaches to Competitive advantageare based on the Business level strategies of

    Overall Cost Leadership

    Differentiation

    Focus

    An overall low-cost position enables a firm toachieve above average returns despite strongcompetition. It protects a firm against rivalryfrom competitors because lower costs allow aform to earn returns even if its competitorseroded their profits through intense rivalry.

    Too much focus on one or a few value chainactivities

    All rivals share a common input or raw

    material The Strategy is easily imitated

    This strategy consists of creating differences inthe firms product or service offering bycreating something that is perceived as unique

    and valued by customers. Differentiationprovides protection against rivalry since brandloyalty lowers customer sensitivity to price

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    Too much Differentiation

    Too high a price premium Perception of Differentiation

    This strategy is based on the choice of a narrow

    competitive scope within an industry. Theessence of focus is the exploitation of aparticular market niche. The focus strategy is ahybrid of the cost leadership strategy and thedifferentiated strategy

    Focusers may become too focused to satisfybuyer needs.

    Erosion of cost advantages within the narrowsegment

    Firms that successfully integrate bothdifferentiation and cost advantages create anenviable position to be in. For examples Bidcosintegration of information systems, logisticsand transportation helps it to drive down costsand provide outstanding product selection.