Competitive Rivalry and Competitive Dynamics KNOWLEDGE OBJECTIVES Define competitors, competitive rivalry, competitive behavior, and competitive dynamics. Describe market commonality and resource similarity as the building blocks of a competitor analysis. Explain awareness, motivation, and ability as drivers of competitive behavior. Discuss factors affecting the likelihood a competitor will take competitive actions. Discuss factors affecting the likelihood a competitor will respond to actions taken against it. Explain competitive dynamics in slow-cycle, fast-cycle and standard-cycle markets. CHAPTER OUTLINE Opening Case Competition Between Hewlett-Packard and Dell The Battle Rages On A MODEL OF COMPETITIVE RIVALRY COMPETITOR ANALYSIS
Market Commonality Resource Similarity DRIVERS OF COMPETITIVE ACTIONS AND RESPONSES Strategic Focus Who Will Win the Competitive Battles Between Netflix and Blockbuster COMPETITIVE RIVALRY
Strategic and Tactical Actions Strategic Focus Using Aggressive Pricing as a Tactical Action at Wal-Mart LIKELIHOOD OF ATTACK
Quality LIKELIHOOD OF RESPONSE
Type of Competitive Action
Dependence on the Market Popped the Top COMPETITIVE DYNAMICS
Standard-Cycle Markets SUMMARY REVIEW QUESTIONS EXPERIENTIAL EXERCISES NOTES LECTURE NOTES Chapter Introduction The competitive landscape of the twenty-first century will be characterized by increasing globalization, advanced technological development, and other factors that will lead to an environment that is more dynamic and charged with rivalry. Firms will act and react in a dance of sorts, but one involving very high stakeseven survival. This chapter introduces terms and concepts relevant to the conversation about competitive behavior in a variety of markets. Figure 5.2 is central to the discussion of most of the chapter. OPENING CASE Competition Between Hewlett-Packard and Dell The Battle Rages On At the end of 2006, Hewlett-Packard had caught and passed Dell for the lead in worldwide PC market share. Dells share of the PC market fell to 14.7 percent while HPs share grew to 18 percent. This deterioration of market share contributed to a 32 percent total decline in Dells stock price, while the increase in market share resulted in an increase of 100 percent in HPs stock price for the same period. An innovative business model that was deemed a stroke of genius in 1984 became ineffectual with time. The reason(s) for this change are based in competitive dynamics. Dell expanded usage of its once-innovative business model to attempt to continuously lower product costs, ultimately allowing it to lower its prices. The uniqueness of Dells model became less valuable to PC customers. Concentrating on a single business model can lead to quick growth when demand for a firms products continues to expand. Over a longer period, however, innovation and reinvention are the foundation for ongoing success. Hewlett-Packards recent overtaking of Dell was not a result of challenging Dell at its own game. Over the past several years, HP found ways to innovate and reinvent itself. After examining its business model, Todd Bradely, the HP executive who now heads PC operations, concluded that HP was fighting on the wrong battlefield. HP was concentrating its resources to fight Dell where Dell was strong, in direct sales over the Internet and phone. Instead (Bradely) decided, HP should focus on its strength, retail stores, where Dell had no presence at all. To successfully change its focus, HP developed close relationships with retailers, even trying to personalize PCs. For example, HP worked with Best Buy to design and produce a white-and-silver notebook computer. Aimed at attracting female customers, this machine, priced at 1,100, was one of Best Buys top-selling notebooks during the 2006 holiday season. Dells decision to venture into retail selling is a...
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