Chapter 4 Flashcards
Identifying competitors
Level 1: Direct competitors
Level 2: Indirect competitors
Level 3: Satisfy the same customer needs
Level 4: Compete for the same spending power
Identify actual and potential competitors
Customer-based approach
- customer choices
- product-use associations
Strategic groups approach
- similar competitive strategies, characteristics, assets and competencies
Approaches to identifying competitors
Market perspective/ customer-based approach: All firms that satisfy the same customer needs
Industry concept / strategic group
approach:
Firms that offer products that are close substitutes for each other
Industry Competition
Industry= group of firms that offer product/s that are close substitutes
Classified according to:
- Number of sellers
- Degree of product differentiation
- Presence/absence of barriers
- Cost structure
- Degree of vertical integration
- Degree of globalisation
Different groups of firms within an industry:
Strategic group = group of firms that follow the same strategy in a given target market
A strategic group is a group of firms that:
- Pursue similar competitive strategies
- Have similar characteristics
- Have similar assets and competencies
React to the same environmental changes
Mobility barriers prevent movement between groups
Four industry structure
- Monopoly: one firm controls output and price of a product that has no close substitutes e.g. Eskom
- Pure competition: Large number of sellers, standardised product to well informed consumers e.g. Wheat farmers
- Oligopoly: Small number of firms dominate the market for goods or a service e.g. Vodacom, MTN, Cell C
- Monopolistic competition: Large number of suppliers offer similar, but not identical products e.g. Fridges, TVs, cars
Five competitive forces
- Threat of new entrants
Entry barriers:
- Factor cost advantages
- Economies of scale
- Effective differentiation and high switching costs
- Channel crowding - Threat of substitute products
Substitutes impact significantly if they possess additional benefits:
- Performance benefits
- Security benefits
- Availability benefits
- Flexibility benefits - Bargaining power of buyers
A supplier’s bargaining power depends on:
- Size relative to customers
- Reliance of customer on supplier’s product
- Credibility of threats to integrate forward - Bargaining power of suppliers
Suppliers tend to be powerful when:
- Concentrated/well-organised
- Few substitutes available
- Supplied product is important input in production process
- High cost of switching suppliers
- Supplier able to integrate downstream - Rivalry between existing competitors
Understanding potential competition
Potential market entrants – firms may engage in:
- Market expansion
- Product expansion
- Integration (forward, backward, vertical)
- Export of assets or competencies
- Retaliatory or defensive strategies
- Entry barriers
Understanding current competition
COMPETITOR ACTIONS:
- Size, growth & profitability
- Image & positioning strategy
- Competitor objectives & commitment
- Current & past strategies
- Competitor culture
- Cost structure
- Exit barriers
Evaluating strengths and weaknesses of competitors
Key Success Factor (KSF) = those characteristics or conditions in a particular industry that have a significant impact on the performance of the firm in that industry
Step 1 = Identify key success factors in theindustry; relative importance score
Step 2 = Rate the firm and competitors on each KSF
Step 3 = Consider the implications for competitive strategy
Anticipation of competitor actions
- Laid-back competitor
- Selective competitor
- Tiger competitor
- Stochastic competitor
Competitive capability= agility x reach/ time-to-market
The Selective Competitor: A competitor might react only to certain types of attacks and not to others. The Tiger Competitor: This company reacts swiftly and strongly to any assault on its terrain. The Stochastic Competitor: Some competitors do not exhibit a predictable reaction pattern.
Types of Direct rivalry among competitors
- Competitors identical = equilibrium unstable
- Single major factor the critical factor = equilibrium unstable
- Multiple factors critical = equilibrium more stable
- Fewer critical competitive variables = fewer competitors
- Measurement of competitive equilibrium = ratio of 2:1
- High customer-switching costs =equilibrium more stable
Attacking and Avoiding competitors
- Attacking weak competitors is cheaper; but not much to be gained
- Benchmarking and competing with strong competitors may enhance the firm’s capabilities and skills
- Most firms compete with those that resemble them the most
- Firms should avoid destroying their closest competitors
- Form coalitions and partnerships with competitors
