Competitive Rivalry - Definition

Ongoing set of
competitive actions and
competitive responses
occurring between
competitors as they
contend with each other
for an advantageous
market position

Model of Competitive
Rivalry

Over time firms take competitive actions

Pattern shows firms are mutually interdependent
Firm level rivalry is usually dynamic and complex
Foundation for successfully building and using
capabilities and core competencies to gain an
Interfirm
rival position
advantageous
market

Competitive
Analysis
Market
commonality
Resource
similarity

Drivers of
Competitive
Behavior
Awareness
Motivation
Ability

- Ability of attack
First-mover
incentives
Organizational size
Quality
- Ability of response
Type of competitor
action
Reputation
Market dependent

Feedback

Outcome
Market position
Financial
performance

Competitor Analysis :

Commonality: Each industry composed of various markets which can be

subdivided into (segments)
Resource Similarity: Extent to which firms tangible/intangible resources
are comparable to competitors in type and amount
Market commonality & resource similarity influence three drivers of
competitive behavior
Awareness
Motivation
Ability
Other influences include resource dissimilarity
The greater the resource imbalance between acting firm and competitors
or potential responders, the greater will be the delay in response e in time
or money to enter your market and compete effectively.

Competitive Rivalry
Important to understand competitors awareness, motivation and
ability in order to predict the ability of an attack
What are the strategic and tactical actions?
Strategic actions/responses: market-based moves that signify a
significant commitment of organizational resources to pursue a
specific strategy
Difficult to implement and reverse
Tactical actions/responses: market-based moves that involve
fewer resources to fine-tune a strategy that is already in place
Easy to implement and reverse

Threat of Substitutes
Force: Likelyhood of changing to substitute product
If switching cost is low -> serious threat
Examples:
Industry Soft Drinks
- Buyer propensity to substitute:
Brand Loyalty decreases the threat
- Relative price performance:
Price competition: Similar product but cheaper
Lower quality but significantly cheaper
= threat
Slightly better and a little more expensive = threat

= threat

- Buyer switching costs:

Bigger costs, small threat. Buyers like to use only one supplier.
e.g. in restaurant business Pepsi vs. Coca-Cola: campaigns and promotion may increase the
switching risk.
Fixed term leasing contracts (soda machines/brand fridges), maintenance contracts, re-fill
and delivery terms and costs reduce the threat of switching.