Understanding Competition

1
Understanding Competition

• Chapter 4

2
Topics Chapter 4

• Types of Competition
• Classifying Competitors
• Intensity of Competition
• Competitive Intelligence
• Seeking Competititve Advantage

3
Natural and Strategic Competition

• Natural Competition
• Strategic Competition

4
Natural Competition Survival of the Fittest

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

5
Strategic Competition Deployment of Resources

• Information
• Framework of interactive system
• Postponement of current consumption

6
Strategic Competition Deployment of Resources

• Investment in irreversible outcomes
• Prediction of output consequences

7
Sources of Competition

• Customer need
• Industry competition
• Product-line competition
• Organizational competition

8
Factors Contributing to Competitive Rivalry

• Opportunity potential
• Ease of entry
• Nature of product

9
Factors Contributing to Competitive Rivalry

• Exit barriers
• Homogeneity of market
• Industry structure

10
Factors Contributing to Competitive Rivalry

• Industry structure
• Commitment to industry
• Technological innovations

11
Factors Contributing to Competitive Rivalry

• Scale economies
• Economic climate
• Diversity of firms

12
Competitive Intelligence

• Strategies, objectives, goals
• Importance of specific markets
• Level of commitment

13
Competitive Intelligence

• Strengths
• Limitations
• Weaknesses

14
Competitive Intelligence

• Future changes in strategy
• Effects on industry, market, our strategies

15
Sources of Competitive Information

• Public
• Trade
• Government
• Investors

16
Industry Dynamics Industry Profit Economics

• Volume
• Materials
• Labor
• Capital

• Market Penetration
• Dealer Strength

17
Seeking Competitive Advantage

• Capabilities defend against competitive forces
• Strategic moves improve firms relative position

18
Seeking Competitive Advantage

• Anticipate and respond to shifts in factors
• Choose strategy appropriate to new competitive
  balance

19
Achieving Competitive Distinctiveness

• Market focus
• Product differentiation
• Alternative distribution channel
• Selective pricing

20
Intensity of Competition

• Opportunity
• Ease of entry
• Price similar products
• Non-price factors other than price

21
Intensity of Competition

• Homogeneity of the market greater intensity
• More firms greater intensity
• Commitment greater intensity
• Innovation greater intensity
• Economies of scale greater intensity

22
Competitive Advantage

• Outperform competitors
• Grow despite competitors

23
Competitive Advantage

• Develop own distinctive competencies that hold
  potential for competitive advantages

24
Competitive Advantage Two Analytical Tools

• Industry analysis
• market attractiveness based on economic structure

25
Competitive Advantage Two Analytical Tools

• Comparative analysis
• likely future performance of an individual firm
  in a particular market given the structure of the
  industry

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Porters Model of Industry Structure Analysis
Potential Entrants
Threat of new entrants
The Industry Degree of Rivalry
Bargaining Power
Bargaining Power
Suppliers
Buyers
Threat of substitutes
Substitutes
27
Porters Model of Industry Structure Analysis

• Determines strength of the competitive forces of
  an industry
• Determines the profitability of the industry

28
Porters Model of Industry Structure Analysis

• Identifies the structure common to the whole
  industry

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Porters 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

30
Porters Model Degree of Rivalry

• Function of
• Product differentiation lessens competition
• Exit barriers (difficult to leave the industry)
  intensifies competition

31
Porters Model

• The higher the threat of potential entrants the
  greater the competition
• The greater the threat of substitutes the greater
  the competition

32
Porters Model

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

33
Comparative Analysis

• Examines specific advantages of individual firms

34
Comparative Analysis Two Types of Advantages

• Structural built into the business
• Responsive result of past decisions

35
Stages of the Business System

• Technology
• Product Design
• Manufacturing
• Marketing
• Service
• Distribution

36
Competitive Advantage

• Can be achieved in different ways
• Concentration on particular market segment

37
Competitive Advantage

• Products that are different than competitors
• Alternative distribution channels
• Selective pricing and different cost structures

38
Competitive Advantage

• Sustainable
• Unique
• Market responsive
• Superior

39
Strategies for Sustaining Competitive Advantage
40
Strategies for Sustaining Competitive Advantage

• Sustaining competitive advantage requires
  erecting barriers against competition

41
Barrierssources

• Size of target market
• Superior access to resources or customers
• Access to lower cost structure that is not
  accessible by competitors
• Based on cost, price or service differentials

42
Successful Barriers

• Returns higher margins
• Sustainable
• Unbreachable by the competition costs more to
  competitors to surmount than it costs the firm to
  defend

43
Barriers/ Umbrellas

• Barriers have a cost to erect and defend
• The cost to defend the barrier becomes an
  umbrella

44
Strategies for Sustaining Competitive Advantage

• Protected best position
• Specialty at risk high profit, high risk of
  erosion
• Commodity low profitability
• Dying worst position