Understanding Competition

Topics

Types of CompetitionClassifying CompetitorsIntensity of CompetitionCompetitive IntelligenceSeeking Competititve Advantage

Natural and Strategic Competition

Natural CompetitionStrategic Competition

Natural Competition: Survival of the Fittest

Two firms doing business the same way in the same market cannot coexist forever

Strategic Competition: Deployment of Resources

InformationFramework of interactive systemPostponement of current consumption

Strategic Competition: Deployment of Resources

Investment in irreversible outcomesPrediction of output consequences

Sources of Competition

Customer needIndustry competitionProduct-line competitionOrganizational competition

Factors Contributing to Competitive Rivalry

Opportunity potentialEase of entryNature of product

Factors Contributing to Competitive Rivalry

Exit barriersHomogeneity of marketIndustry structure

Factors Contributing to Competitive Rivalry

Industry structureCommitment to industryTechnological innovations

Factors Contributing to Competitive Rivalry

Scale economiesEconomic climateDiversity of firms

Competitive Intelligence

Strategies, objectives, goalsImportance of specific marketsLevel of commitment

Competitive Intelligence

StrengthsLimitationsWeaknesses

Competitive Intelligence

Future changes in strategyEffects on industry, market, our strategies

Sources of Competitive Information

PublicTradeGovernmentInvestors

Industry Dynamics: Industry Profit Economics

VolumeMaterialsLaborCapital

Market Penetration

Dealer Strength

Seeking Competitive Advantage

Capabilities defend against competitive forces

Strategic moves improve firm’s relative position

Seeking Competitive Advantage

Anticipate and respond to shifts in factorsChoose strategy appropriate to new

competitive balance

Achieving Competitive Distinctiveness

Market focusProduct differentiationAlternative distribution channelSelective pricing

Intensity of Competition

OpportunityEase of entryPrice: similar productsNon-price: factors other than price

Intensity of Competition

Homogeneity of the market: greater intensity

More firms: greater intensityCommitment: greater intensityInnovation: greater intensityEconomies of scale: greater intensity

Competitive Advantage

Outperform competitorsGrow despite competitors

Competitive Advantage

Develop own distinctive competencies that hold potential for competitive advantages

Competitive Advantage: Two Analytical Tools

Industry analysis: market attractiveness based on economic structure

Competitive Advantage: Two Analytical Tools

Comparative analysis: likely future performance of an individual firm in a

particular market given the structure of the industry

Porter’s Model of Industry Structure Analysis

Potential Entrants

The Industry

Degree of Rivalry

Suppliers Buyers

Substitutes

Threat of new entrants

Threat of substitutes

Bargaining Power

Bargaining Power

Porter’s Model of Industry Structure Analysis

Determines strength of the competitive forces of an industry

Determines the profitability of the industry

Porter’s Model of Industry Structure Analysis

Identifies the structure common to the whole industry

Porter’s Model: Degree of Rivalry

Function of:Number of competitors and industry growth

(most influential)Asset intensity: high fixed cost forces firm to

cut price to operate at capacity

Porter’s Model: Degree of Rivalry

Function of:Product differentiation lessens competitionExit barriers (difficult to leave the industry)

intensifies competition

Porter’s Model

The higher the threat of potential entrants the greater the competition

The greater the threat of substitutes the greater the competition

Porter’s Model

The greater the power of suppliers to increase prices reduces profitability

The greater the power of buyers to force low prices reduces profitability