Chapter 4
Understanding Competition
A. Types of Competition
1. Natural and Strategic Competition (TM 4-1)
B. Classifying Competitors
1. Sources of Competition (TM 4-2)
C. Intensity of Competition
1. Factors Contributing to Competitive Rivalry (TM 4-3)
D. Competitive Intelligence
1. Knowing the Competition (TM 4-4)
2. Sources of Competitive Information (TM 4-5)
E. Seeking Competitive Advantage
1. Checklist for Understanding Industry Dynamics (TM 4-6)
2. Porter’s Model of Industry Competition (TM 4-7)
3. Industry Structure and Performance: Blue-Jeans Industry (TM 4-8)
4. Business Systems Framework
• Business System of a Manufacturing Company (TM 4-9)
• Sources of Economic Leverage In the Business System (TM 4-10)
• Plain-Paper Copier Strategy: Xerox vs. Savin (TM 4-11)
5. Seeking Competitive Advantage: Ground Rules (TM 4-12)
6. Achieving Competitive Distinctiveness (TM 4-13)
7. Strategies for Sustaining Competitive Advantage (TM 4-14)
194
195 CHAPTER 4: Understanding Competition
4-1
NATURAL AND STRATEGIC
COMPETITION
A. Natural Competition:
It refers to the survival of the fittest in a given
environment. Applied to the business world, it
means that no two firms doing business across
the board the same way in the same market can
coexist forever.
B. Strategic Competition:
It is the studied deployment of resources and
requires:
•
Adequate information surrounding the
situation.
•
Framework to understand the dynamic
interactive system.
•
Postponement of current consumption.
•
Commitment to invest resources to an
irreversible outcome.
•
Ability to predict output consequences.
CHAPTER 4: Understanding Competition 196
4-2
SOURCES OF COMPETITION
CUSTOMER NEED: LIQUID FOR THE BODY
Existing:
Thirst
Latent:
Liquid to reduce weight
Incipient:
Liquid to prevent aging
INDUSTRY COMPETITION
Existing Industries:
(How can I quench my thirst?)
Hard liquor
Beer
Wine
Soft drink
Milk
Coffee
Tea
Water
New Industry:
Mineral water
PRODUCT-LINE COMPETITION
Me-Too Product:
(What form of product do I want?)
Regular cola
Diet cola
Lemonade
Fruit-based drink
Improved Product:
Caffeine-free cola
Breakthrough Product:
Diet and caffeine-free cola providing full nutrition
ORGANIZATIONAL COMPETITION
Type of Firms
Existing Firms:
Coca-Cola
Pepsi-Cola
Seven-Up
(What brand do I want?)
197 CHAPTER 4: Understanding Competition
4-3
FACTORS CONTRIBUTING TO
COMPETITIVE RIVALRY
• Opportunity potential
• Ease of entry
• Nature of product
• Exit barriers
• Homogeneity of the market
• Industry structure or competitive position of
firms
• Commitment to the industry
• Feasibility of technological innovations
• Scale economies
• Economic climate
• Diversity of firms
CHAPTER 4: Understanding Competition 198
4-4
KNOWING THE COMPETITION
• Who is the competition—now? Five years from
now?
• What are the strategies, objectives, and goals of
major competitors?
• How important is a specific market to each
competitor and what is the level of its
commitment?
• What are the competitors’ relative strengths and
limitations?
• What weaknesses make the competitor
vulnerable?
• What changes are competitors likely to make in
their future strategies?
• So what? What will be the effects on the
industry, the market, and our strategy of all the
competitors’ strategies?
199 CHAPTER 4: Understanding Competition
4-5
SOURCES OF COMPETITIVE INFORMATION
PUBLIC
What compet-
•
itors say about
•
TRADE
PROFESSIONALS
Advertising
•
Promotional
•
GOVERNMENT
Manuals
•
SEC reports
Technical
•
FIC
Testimony
papers
•
Press
•
Licenses
•
Lawsuits
releases
•
Patents
•
Antitrust
Speeches
•
Courses
•
Books
•
Seminars
•
Articles
•
Personnel
•
Suppliers/
•
Lawsuits
themselves
materials
•
•
INVESTORS
•
Annual
meetings
•
Annual
•
Prospectuses
•
Stock/bond
reports
issues
changes
•
Want ads
What others
•
Books
say about
•
Articles
them
•
•
•
Newspaper
•
vendors
•
Antitrust
Case studies
•
Trade press
•
State/
Consultants
•
Industry
study
reporters
•
Customers
Environmental
•
Subcon-
groups
•
Consumer
groups
federal
tractors
•
analyst
reports
•
agencies
•
National
plans
•
Government
programs
Security
Industry
studies
•
Credit
reports
CHAPTER 4: Understanding Competition 200
4-6
CHECKLIST FOR UNDERSTANDING
INDUSTRY DYNAMICS
• Industry profit economics
– Volume
– Materials
– Labor
– Capital
– Market penetration
– Dealer strength
• Ease of entry
• Effect of integration
• Effect of cyclical swings on supply and demand
201 CHAPTER 4: Understanding Competition
4-7
.
PORTER’S MODEL OF INDUSTRY
COMPETITION
CHAPTER 4: Understanding Competition 202
4-8
INDUSTRY STRUCTURE AND
PERFORMANCE: BLUE-JEANS INDUSTRY
203 CHAPTER 4: Understanding Competition
4-9
BUSINESS SYSTEM OF A
MANUFACTURING COMPANY
CHAPTER 4: Understanding Competition 204
4-10
SOURCES OF ECONOMIC LEVERAGE
IN THE BUSINESS SYSTEM
205 CHAPTER 4: Understanding Competition
4-11
PLAIN-PAPER COPIER STRATEGY:
XEROX VS. SAVIN
CHAPTER 4: Understanding Competition 206
4-12
SEEKING COMPETITIVE ADVANTAGE:
GROUND RULES
• Position the firm so that its capabilities provide the
best defense against the existing array of competitive
forces.
• Influence the balance of forces through strategic
moves, thereby improving the firm’s relative position.
• Anticipate shifts in the factors underlying the forces
and responding to them, hopefully exploiting change
by choosing a strategy appropriate to the new
competitive balance before rivals recognize it.
207 CHAPTER 4: Understanding Competition
4-13
ACHIEVING COMPETITIVE
DISTINCTIVENESS
• Market focus
• Product differentiation
• Alternative distribution channel
• Selective pricing
CHAPTER 4: Understanding Competition 208
4-14
STRATEGIES FOR SUSTAINING
COMPETITIVE ADVANTAGE