Post on 18-Jan-2016
transcript
Hypercompetition
Hypercompetitive RivalriesRichard D’Aveni and Robert Gunther
The PLC Phase
Focus on the firm andits strategies at different
stages of the PLCSWOT framework
Hypercompetition Phase
Focus on the competitiveinteractions w.r.t. the four
competitive arenasC-Q/T-K/S/D framework
ValueNet Phase
Focus on all the playersrelevant to your operations
PARTS framework
Number of Players
Com
plex
ity o
f A
naly
sis
Limitations of traditional view
A key limitation of all the above strategies is that it ignores the dynamics of competition in the marketplace. While the issue of foremost importance for the company is the customer, D’Aveni notes that competitive interaction among firms typically goes through six stages
Strategic Competitive Advantage
Profits from asustained
competitiveadvantage
Time
LaunchExploitation
Counterattack
Profits from aseries of actions
Time
Exploitation
Launch
Counterattack
Firm has already moved to advantage 2
Traditional View
Hypercompetition
DEC
• DEC in minicomputers. The company posted a 31% average growth rate from 1977 to 1982 by focusing on the minicomputer. The company clung so tenaciously to its advantage in minicomputer technology that it failed to develop a strong position in the emerging markets for minicomputers and PCs. As CEO Ken Olsen commented in 1984 (Businessweek), “We had 6 PCs in-house that we could have launched in the late 70s. But we were selling so many (VAX minis), it would have been immoral to chase a new market.”
Hypercompetition
Four arenas of competition
• Cost & Quality (C-Q)• Timing and know-how (T-K)• Strongholds (S)• Deep pockets (D)
Coke vs. Pepsi• Coke: 1886; Pepsi: 1893
• 1933: Pepsi struggling to stave off bankruptcy. Dropped price of its 10c, 12 oz. bottle to 5c, making it a better value
• Ad jingle “twice as much for a nickel” better known in the US than the Star Spangled Banner
Pepsi Coke
Pri
ce /
Oun
ce
Pri
ce /
Oun
ce
Pepsi
Coke
Perceived Quality Perceived Quality
Coke vs. Pepsi, Contd.....
Pepsi Coke
Pri
ce /
Oun
ce
Pri
ce /
Oun
ce
First move:PepsiChallenge
Perceived Quality Perceived Quality
Pepsi keeps price advantage through 60s and 70s, when Pepsi charged its bottlers 20% less for its concentrate
With rising ingredient costs, Pepsi could no longer offer twice as much for the same price. So it raised price to Coke’s level giving it a war chest to fuel an aggressive ad campaign
Battle shifted from Price to Quality, with Pepsi targeting the youth What followed was the Pepsi Challenge & “Real Thing” Coke ads
Youth & MiddleClass Segments 2nd move:
Coke’s Ad war
Coke vs. Pepsi, Contd.....P
rice
/ O
unce
Pri
ce /
Oun
ce
Perceived Quality Perceived Quality
Perceived quality caught up. Deeper pocketed and lower cost Coke initiated a price war in selective markets where Pepsi was weak in the 70s. Pepsi responded with its discounts and by the end of the 80s, 50% of food store sales were on discount
Other companies moved into the lower left quadrant of the market. But the two major players forced price down to “ultimate value.”
To break price spiral, Coke launched New Coke to keep Coke loyals and induce switching among Pepsi buyers. Rejected by market.
Attempts to move to next arena via niches in caffeine and sugar substitutes
GenericsRC Cola
Coke &PepsiPriceSpiral NewCoke
ActualClassic Coke& Pepsi
NewCokeIntended
Price-Quality Maneuvers
Price War
Full line Producers
Niching & Outflanking
Move to Ultimate Value
Attempt to redefine Quality
Commodity like Market
Return to Price Wars
Move to the next Arena
The Cycle of Price-Quality Competition - MovingUp the Escalation Ladder
Pri
ce
Perceived Quality
..
..
.
#1 Low quality (leaky) unbranded& 2 piece diapers
#2 Pampers (P&G)
#3 Kimbies (Kimberly Clark)
#4 Huggies (Kimberly-Clark)
#5 Luvs (P&G)
Creeping up the line in diapers
The Move Towards Offering Ultimate Value
E1
D
E2
E3
E4
D
E5
V1
V2
V3
First V
alue Line
Next V
alue Line
Ultimate
Value Line
Perceived Quality
Price
The Fast Food Business
Perceived Quality
Price
M1
B1
W1
W2
B2
M2 UV
Wendy’s
Burger King
McDonald’s
Firm builds a Tech. ResourceBase to create advantage
Then moves into a new marketfirst: Pioneer
Followers imitate products & overcome switching costsand brand loyalties
Pioneer throws up impediments to imitation
Followers overcome impedimentsand replicate pioneer’s resource base
First mover uses a TransformationStrategy & abandons product design/
technology based approach
Builds resources to match followersmanufacturing skills
Price War
First mover uses a LeapfrogStrategy to a new resource base
First mover movesdownstream into
higher value addedproducts
Escalating costs &risks each cycle
Cycle of Timing / Know-HowCompetition
The First Dynamic Strategic Interaction:Capturing First Mover Advantages
• Response lags: Obtaining monopoly rents• Economies of scale• Reputation, switching costs and loyalty• Advertising and channel crowding• User-base effects: Network size and user base provide funds for the next
leap• Producer learning / experience effects• Pre-emption of scarce assets (McDonald’s restaurant locations)
First movers need• Innovation skills• Customer knowledge• Market penetration and marketing skills• Flexible manufacturing skills
The Second Dynamic Strategic Interaction:Imitation & Improvement by Followers
Diffusion is rapid when
• reverse engineering is easy
• equipment suppliers help transfer key technologies or other business know-how
• industry observers, trade associations, etc. help transfer know-how
• personnel move to rival firms frequently
• leaks of secret information are commonplace and not illegal
To win, an imitator needs 3 things that fall in these regimes:
• Appropriability - related to the strength of patents and other legal protection and the difficulty for followers to invent around patents
• Dominant design paradigm - if follower enters before a dominant design emerges, it has a better shot with own design
• Complementary assets - marketing, manufacturing, and other skills are needed to produce a new product
The Second Dynamic Strategic Interaction:Imitation & Improvement by Followers
Follower strategies work best when the first mover is unable to keep up with demand (Adidas & Nike - no fortressing), is not satisfying all segments of consumers or all varieties of needs ( flanking) or has a design flaw that can be corrected (aspirin vs. buffered aspirin)
• Pure imitation strategy
• Adding bells & whistles• P&G - Crest (basic toothpaste); Lever - CloseUp (+freshen breath and
whiten teeth) and Aim (gel + fluoride protection); Beecham - AquaFresh (fights cavities + freshens breath + whitens teeth)
• Stripping down: Niche airlines
• Flanking products• Reconceptualized products: Mobike from inexpensive transport to vehicle
for fun and recreation to a status symbol
• Risk reduction: warranties, free samples, etc.
• Compatible products
The Third Dynamic Strategic Interaction:Creating Impediments to Imitation
• Deterrent pricing
• Secret information (Coke formula, SABRE investment costs)
• Size economies
• Contractual relationships
• Threats of retaliation
• Patents
• Bundles products (follower does not have access to all components)
• Switching costs
• Restrictive (e.g., geographic) licensing (e.g., Sealed Air)
Time
$ / U
nit
Time
$ / U
nit
Cost Cost
Price
IntroductoryPrice Umbrella
Followers enter
Price competitiveMarket
The Fourth Dynamic Strategic Interaction:Overcoming the Impediments
• Deterrent pricing: No problem if the follower is resource rich; Process innovations
• Secret information: Reverse engineering, experimentation (private label colas)
• Size economies: Process innovations; build scale in one geographic area and expand (Japanese auto builders); No problem if growth exceeds first mover’s capacity
• Contractual relationships: New supplier, vertical integration
• Threats of retaliation: Some may not be credible if innovator also loses
• Patents: Increase imitation costs only by 11%
• Bundled products: Joint ventures, vertical integration
• Switching costs: Advertising, promotions, etc.; may make market more attractive as follower can reap the benefits once in
The Fifth Dynamic Strategic Interaction:Transformation or Leapfrogging
• Transformation strategy
• Compaq - from a premium priced innovator to a low cost manufacturer
• Leapfrogging strategy
• Cyrix introduced the 486 clone in 18 months, compared to the standard 3 to 4 year industry cycle. And produced it at 4% of Intel’s initial investment. For a while also hoped to leapfrog Intel
• P&G and Ultra thin diapers in Japan
• McDonald’s leapfrogged over competition by reconceptualizing itself as a restaurant - not just a place for burgers
The Fifth Dynamic Strategic Interaction:Leapfrogging
Trinitron TV
Betamax
Walkman
I
P E
I
P
E
I
P E
I: New product Introduced
P: Profits from price umbrella
E: Profit decline due to new entry and R&D for next project
The Sixth Dynamic Strategic Interaction:Downstream Vertical Integration
• Sony entered the software side of the entertainment business with Columbia Pictures - but imitated by Matsushita
• Intel and motherboards
• Problem is that it ties up resources that could fruitfully be committed to building the company’s core businesses
Strongholds and Entry Barriers
Maxwell house was dominant in the East Coast market and Folgers was strong in the West Coast.
After being acquired by P&G, Folgers entered the Cleveland market to increase its eastern penetration.
Maxwell countered by attacking Folgers’ stronghold; lowering prices and increasing ad expenditures in Kansas city. Maxwell also introduced a “fighting brand” called Horizon which was similar to Folgers in taste and in packaging.
Folgers then escalated by entering Pittsburgh.
Maxwell responded by entering Dallas with reduced prices. The battle continued until the market was no longer two coastal segments but one national battleground
Strongholds and Entry Barriers
BIC revolutionized the disposable ballpoint pen with its mass merchandising skills
Gillette entered the market for disposable pens (PaperMate), overcoming entry barriers (access to distribution channels, economies of scale in advertising, brand equity, etc.) by using its own considerable skills in mass merchandising.
So BIC counter- attacked by entering Gillette’s stronghold, disposable razors - giving rise to multi-market competition.
FedEx vs. UPS• UPS – Dominant in ground based parcel delivery service, such as department
store parcels.
• FedEx grabbed market share of air-borne delivery, i.e., overnight service.
• Now, UPS is launching an all-out attack to garner a bigger chunk of the lucrative overnight business, where FedEx is king (60%).
• United States Postal Service - leader in two-day delivery, wants to move into the overnight business.
• Companies are taking the battle to the others' turf. “They're beginning to diversify further into each others' core markets. Federal (Express) has introduced some time-deferred, ground-based capabilities," Rockel said. “At the same time, UPS has developed (the) express air-based ability of their company."
• The fevered rush to capture business has also spread to the Internet. Both companies have web sites where consumers can order merchandise and businesses can track shipments. Even more importantly, both UPS and FedEx are investing billions of dollars to build distribution systems in Europe and Asia, betting on those largely untapped markets
Management Challenges
• Do you base your strongholds on geographic areas (Folgers) or product markets (FedEx)? How do competitors define strongholds?
• Where are your strongholds vulnerable to attack?• What barriers do you use to protect your strongholds? What
barriers are used by your competitors?• How can you respond to an attack from outside?• How will you make the move into another player’s stronghold?
What competitive response do you anticipate?• Who and what are setting the pace of escalation down the
strongholds ladder in your industry? Why?
Build entry barrier around market Ato exclude competition
Build entry barrier around market Bto exclude competition
Circumvent barriers and attackniche in market B
Short Run: Withdraw from niche or fail to respond
Delayed Response: Barriers to contain entrant to a segment of B
Entrant breaches barriersor triggers price war in B
Incumbent’s stronghold in B weak-ens as it grows more competitive
Long Run:Incumbent attacks entrant’s market A to punish
Entrant responds in market A or inmarket B
Standoff until one party gains theupper hand in market A or B
Both strongholds erodeor merge into one
market
Price WarOther firmdivests
One firm builds newstronghold
Cyclerestarts withentry into anew market
If one firm dominates
STRONG-HOLDSARENA
Shifting know-how in pharmaceutical industry
Skill Effect Firms
Direct selling tophysicians, 1950s
Allowed for theeffective marketing to
gatekeepers ineconomic transactions
Pfizer / Lederle;Created effectivedifferentiation ofproducts among
gatekeepers
“Blockbuster”marketing, early~mid
80s
Single product focus ofentire detail force andpromotion; effectivewith narrow product
line
Glaxo; created a newway to sell; through
selling, gaveblockbuster potential toa chemically indifferent
drug
Specialized selling Specialized salesforcefor different therapeutic
classes / medicalspecialities; more focuswith broad product line
Merck; Speciallytrained and focused
units in cardio,hospital, etc.
Handling regulatoryrequirements
Speeds drug to market,expanding time
available to patent foreconomic profits
Merck; Marion: Oflimited value without
competence inacquiring new drugs
Deep pocket develops
Launches attack todrive out small firms
Antitrust laws invoked - work
occasionally
Small firms forcedto outmaneuver
deep pocket
Hostile takeoverof large firm
Small firm escalatesown resource base
Cooperative strategy develops
Avoidance strategyniching, etc.
Large scalealliances form with equally deep pockets
Deep pocket advantage is elim
inated or neutralizedBuyers or
suppliers develop acountervailing
force
New attempt to escalate resources
Cycle of DeepPockets Competition
Kroger becomeslarge & powerful
Drops prices
Antitrust suitsfiled by rivals
Kroger winssuits
Many takeover attempts from outside industrylead to high leverage
Mergers
Acquisitions
Small chains seekniches. Kroger also
niches geographicallyto avoid competition
Industryconsolidation
Deep pocket advantage is elim
inated or neutralizedLarge wholesalersprovide economies
to smaller stores
Continued M&A in industry
Cycle of DeepPockets Competition
Hypercompetition
The new 7S framework Superior stakeholder satisfaction Strategic soothsaying Speed Surprise Shifting rules of competition Signaling strategic intent Simultaneous and sequential strategic thrusts
Vision for DisruptionIdentifying and creating
opportunities for temporaryadvantage via understanding•Stakeholder satisfaction• Strategic soothsaying
to ID new ways to serve current customers better or serve
those not being served
Capability for DisruptionSustaining the momentum by
developing abilities for:• Speed
• Surprisethat can be applied across
many actions to builda series of temporary
advantages
Tactics for DisruptionSeizing the initiative to
gain advantage by• Shifting the rules
• Signaling• Strategic thrusts
with actions that shape,mould or influence
the direction or nature ofcompetitors’ responses
MarketDisruption
A 4 Arena Analysis
Arena Key Success Factors Critical 7S
Cost / Quality Understandingcustomer needsCost reduction
S1: StakeholdersatisfactionS3: Speed
Know-how / Timing Foster innovationQuick marketpenetration
S3: SpeedS4: Surprise
S2: Soothsaying
Stronghold creation /invasion
DeterrenceAggression
S6: SignalsS7: Strategic thrusts
Deep pockets Brute forceOut-maneuvering big
opponents
S7: Strategic thrustsS5: Shifting rules
Limitations of the Hypercompetition Perspective
• Ignores the point that competition and co-operation can co-exist. Examples include the development of Advanced Photo Film, DVD, etc.
• Sometimes it may be in the best interests of players not to jump to the next level of dynamic competitive interaction but into co-operative competition - coopetition
• This requires figuring out the situation the firm is facing and then looking at the firm’s valuenet