Understanding Competition

Topics

Types of Competition
Classifying Competitors
Intensity of Competition
Competitive Intelligence
Seeking Competititve Advantage
 Natural and Strategic Competition

Natural Competition
Strategic 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

Information
Framework of interactive system
Postponement of current consumption
Strategic Competition: Deployment of Resources

Investment in irreversible outcomes

Prediction of output consequences
 Sources of Competition

Customer need
Industry competition
Product-line competition
Organizational competition
Factors Contributing to Competitive Rivalry

Opportunity potential
Ease of entry
Nature of product
Factors Contributing to Competitive Rivalry

Exit barriers
Homogeneity of market
Industry structure
Factors Contributing to Competitive Rivalry

Industry structure
Commitment to industry
Technological innovations
Factors Contributing to Competitive Rivalry

Scale economies
Economic climate
Diversity of firms
 Competitive Intelligence

Strategies, objectives, goals

Importance of specific markets
Level of commitment
 Competitive Intelligence

Strengths
Limitations
Weaknesses
 Competitive Intelligence

Future changes in strategy

Effects on industry, market, our strategies
 Sources of Competitive Information

Public
Trade
Government
Investors
Industry Dynamics: Industry Profit Economics

 Volume Market
 Materials Penetration
 Labor Dealer Strength

 Capital
 Seeking Competitive Advantage

Capabilities defend against competitive forces

Strategic moves improve firm’s relative position
 Seeking Competitive Advantage

Anticipate and respond to shifts in factors

Choose strategy appropriate to new competitive
balance
 Achieving Competitive Distinctiveness

Market focus
Product differentiation
Alternative distribution channel
Selective pricing
 Intensity of Competition

Opportunity
Ease of entry
Price: similar products
Non-price: factors other than price
 Intensity of Competition

Homogeneity of the market: greater intensity

More firms: greater intensity
Commitment: greater intensity
Innovation: greater intensity
Economies of scale: greater intensity
 Competitive Advantage

Outperform competitors
Grow 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
Threat of new entrants
The Industry
Suppliers Bargaining Bargaining
Buyers
Power Degree of Power
Rivalry
Threat of substitutes
Substitutes
 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 competition
Exit 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