Exam 1 Flashcards
(S) Hypercompetition
Dramatic increase in competitive actions and reactions
time between actions and reactions has decreased
time it takes to act and react has decreased
No advantages are expected to last very long
(S) Shumpeterian view of advantage
firms achieve advanage through entrepreneurial discovery and innovative competitive action
inspired literature on first mover advantage
desire for profits spur the manager/entrepreneur to discover and take action on opportunities
some firms chose to lead and some firms choose to follow and immitate
(S) Characteristics of disruptive competiton
Shortened response times (reactions are quicker)
frequency of actions are increasing
types of actions: price cuts, new products and patents are on the rise
more competitors, more failures, and generally more hostile rivalry
(S) Reasons for hypercompetition
Globalization
Technology increases
Overall deregulation of industries
(S) S-C-P
Structure-Conduct-Performance
Porters 5 forces framework
competitive advantage is primarily driven by the industry structure and exhibits how a firm is positioned within and influenced by that structure
structure- refers to the number of firms (monopoly at one end perfect come at other end)
Conduct- intensity of rivalry among firms (includes pricing behavior, product strategy, and advertising)
performance- profitability measured at the industry level
(S) monopolistic competition
variation on perfect competition that allows for some differentiation among firms
this successful differentiation gives long run profits
(S) perfect competition
many small firms selling homogeneous products
firms have perfect information
no barriers to entry or market imperfections
Prices are determined by a market equalibrium
little profit margins
if firms do make a positive economic profit new entrants emerge and prices go back down
(S) oligopolistic
Small number of firms
highly interdependent and aware of eachothers actions
high competiton and rivalry
(S) Value Net
With the firm at the center it recognized the effects of the customers competitors complementors suppliers
to be analyzed from both eh suppliers side and the customers side
(S) intraindustry advantage
competitive position within the industry
Strategic groups are part of this
(S)Pairwise advantage
Compared to another player in the industry
analyzes interdependence and fine grained complexity
examines rivalry and how firms actually compete against eachoter
(S) Steps for pairwise analysis
Select a rival firm
List major product and geographic markets of the focal firm
compare market overlaps with competitor firm
assess attractiveness (how important the market is to the focal firm
assess reactiveness (how much incentivee the selected rival has to compete of those shared markets
(S) Stages of product life cycle
Introduction
Growth
Maturity
Decline
(S) generic value chain
Primary activities - technology>design>mfg>marketing>distribution>service
Support activities - HR MGMT R&D
(S) Entrepreneurial Actions
Shumpeteresque
Combining new ore existing resources in a new way to gain a competitive advantage
They Exploit uncertainty and blind spots to cause a competitor delay in response giving a competitive advantage
Good for firms that have an internal and external resource disadvantage — in this case they are avoiding head on competition with someone more powerful than them
(S) Ricardian Actions
Exploit scarce superior resources that are owned by the firm
you need a relative resource advantage
resources must be scarce and heterogeneous among firms
competitor will be blocked from imitation by the inability to secure the resources necessary in a timely manner
examples
Pepsi challenge
caterpillar’s 48 hour parts delivery anywhere int the world
(S) Deterrent actions
evolve from external market power and market leadership
delay response by exploiting market power and intimidation
ex
limit pricing, price predation, extensive advertising and promotion, investing in excess capacity, product proliferation, preemptive patenting
(S) Co-optive actions
actions designed to limit or reduce rivalry
(S) Intangible internal resources
Firm culture, structure, processes, procedures
(S) Tangible Internal resources
financial assets, physical assets including PP&E, and raw materials
(S) Action Based model of competitive advantage
Competitive advantage is determined in the context of competitive resources, action and reaction.
The effectiveness of an action is largely dependent on the competitors ability to respond and the speed of that response
(S) What are some key resources leading to entrepreneurial actions?
• Variation in knowledge among managers
○ People will see and identify different opportunities
§ Opportunity specific
□ See new product/ service that others don’t see
§ Competitor specific
□ You know the skills of your competitors and they are not going to respond to you
§ Implementation specific
You know this is the right time and right place to provide this service
(S) What are some factors that can predict the competitive response to entrepreneurial actions?
• Scope
○ How many of the competitors customers you reach
• Threats
○ The extent of the threat to the competitors (how much it affects the customers)
• Radicality
○ Extent to which the action differs from other actions in the industry
○ (how different is the entrepreneurial action)
What are some key resources leading to ricardian actions?
- Low cost
* Differentiation
What are some factors that can predict the competitive response to ricardian actions?
• The degree of resource imbalance between the acting firm and potential responders, the degree to which the action threatens one or more competitors, and the degree to which competitors are interdependent for the same customer and resources will influence extent of competitive response
Multimarket Contact
- Competing in multiple markets
- Ex Lawry entering steak sauce market to compete with A1 in the marinade market
- Keeping each other honest by entering small in each others market they will each decide to play nice so the other won’t increase market share in their home turf
PESTEL Framework
○ Political ○ Economic ○ Socio Cultural ○ Technological ○ Ecological ○ Legal
way to analyze the broad economic environment
How do most companies respond
Most companies continue with the same strategy they already have or the next logical step
even when companies persue new strategies few introduce them to the market without warning
Two-thirds of respondents say their company’s largest strategic initiative in the past five years that was not driven by economic crisis or competition was undertaken as a
result of some other external challenge or opportunity—and most of those challenges or opportunities result from factors that should be equally visible to companies paying attention to the external events affecting their industry
What companies should you be worried about making strategic maneuvers
Companies that say they met their financial targets and are doing well
This usually means that they have the capabilities and the luxury of making new strategic initiatives
Symmetric Competition
Companies that resemble each other in resources and positions tend to make similar moves
Asymmetric Competition
When companies have different assets, resources, capabilities, and market positions, they will probably react to the same market opportunities and threats in different ways
Mc Donalds vs Burger king on high fat menu items
Types of resources and capabilities in determining types of competitionq
Resources:
Tangible
Intangible
and Current Market Positions – access to customers, economies of scale, scope, and experience
Capabilities:
The ability to identify
and exploit opportunities better than others do
Nintendo Microsoft and Sony and types of competition
Microsoft and sony are both competing to be home entertainment systems (symmetric) while nintendo who has a completely different resource position has created its own niche in the market because it is bound by different goals.
Microsoft is afraid of losing market in the computing industry because sony can become a home entertainment system and sony is afraid to lose ground to microsoft in the home audio and video category. Therefore they both compete to become home entertainment systems where they won’t lose ground to eachother.
Who makes the decisions can be important in determining a competitors strategy because…
Someone like richard branson might do things for a different reason than some top management official who is governed by corporate financial goals or someone who is responsible to share holders or other stake holders
Onslaught
Attack directly to force rivals retreat
Contest
Focus more narrowly and subtly
Disrupt marketshare with breakthrough product strategy
Focus on highly attractive arenas where rivals have less clout
Attack in ways that rivals can’t match
to beat blockbuster warner brothers slashed the prices of its new movie releases to make buying look more attractive than renting
Guerrilla Campaign
Drive wedge into target market
target underserved niche market segments – highly attractive arenas where competitors have clout but lack reactiveness
Progressive offers car insurance to high risk affluent drivers but charges a higher premium
Feint
Distract competitors from real target
Attack somewhere where the competitor is highly reactive to distract them into responding while you spend real time and resources in another more important arena
Gambit
Withdraw from focal arena to lure the competitor in and then focus efforts in another arena where the real target is
Competiting Under Strategic interdependence Model
Competitor attractiveness and reactiveness model
Create a table with different arenas you compete in and the different regions that they exist in where you overlap with your competitor
Assign values for attractiveness to you reactiveness of your competitors and clout in the industry
make a bubble chart
Things to consider when doing this analysis
–what makes the arena attractive to you is not always the same could be financial personal or other same goes for your competitor
Harvesting
both parties focus on extracting profits from an arena that they don’t find attractive
Bounded rationality
or
Information Processing Limitations
Strategic decisions often involve significant complexity and uncertainty and often end up exacerbating the problem
People usually end up using heuristics or rule of thumb
Representativeness Bias
People base decisions based on limited observations that are similar in nature
People tend to underestimate the error and unreliability of data in small sample sizes
Overconfidence Bias
firms often overestimate the own abilities and likelihood of success
Confirmation Bias
decision maker seeks out information to confirm their opinions
Endowment Effect
You value goods more than you have them then when you don’t
not earning $10 is worse than $10 being taking from you
Justify past decision
Throw good money after bad
don’t want past decisions to look bad so you continue with them
Non rational escalation of commitmentq
Persistance and amplification of commitment to a strategy that is failing
Parts of a competitor analysis
• Competitor Goals
○ What are competitor’s current goals?
○ Is performance meeting their goals?
○ How are its goals likely to change?
• Competitor Vision/ Assumptions
○ What assumptions does the competitor hold about the industry, competitors, and its self?
• Competitor strategy
○ How is the firm currently competing?
○ Analyze past competitive actions
• Competitor Capabilities
○ Identify key competitors
○ Analyze each rivals’ resources and capabilities in relation to the focal firms
• They all help make better predictions
○ What strategy changes will the competitor initiate?
○ How will the competitor respond to our strategic initiatives?
○ Left(what drives competitors)
○ Right (what competitors are doing and can do)
How to predict competitor behavior questions
Will They react?
What and how many responses will your rivals choose?
Which is the most likely that they will choose
Strategic interdependence
○ The success of a focals competitive action (or strategy) depends greatly on the competitors reactions( or strategies)
three ways to enter into well guarded markets
Leveraging your assets
Creating a niche
reconfigure the value chain
You need to combine two or more and should be an indirect assault
How do new entrants in general perform in attractive industries
Not well 30% lower than new entrants in other industries
Why do companies engage in price wars
Because it is quick and easy
Cost Plus (types of pricing)
○ Calculate how much it costs to make and deliver each product and add a flat x percentage on top
Matching or relative to competitors (types of pricing)
○ Rival sets price at X, focal sets price at X
Dynamic or strategic pricing
setting prices at what people are willing to pay for them taking into account demand at given time or place
when is it a good idea to start a price war
- Threatens your core business
- You have a cost advantage
- Identify a large, growing market segment that is price sensitive
- More resources( deeper pockets) than rivals to withstand
- You can achieve economies of scale by increasing market share
- Eliminate or neutralize a rival along with the presence of high entry barriers
When To flee a price war
- Afford to cede some market share
- Afford to compete on differentiation and innovation
- Afford to leverage opportunities in other market segments
Ways to fight a price war non price methods
Reveal your strategic intentions and capabilities — lets them know your game and maybe they will avoid the price war too because it would hurt both of you or it could say that you have the upper hand and are willing to fight
Compete on quality —
Co-opt contributors — Form strategic parternerships by offering cooperative or exclusive deals with suppliers, resellers, or providers of related services
ways to fight a price war price methods
Complex Pricing — This makes the prices much more difficult to determine and thus price wars less effective
Introduce new products — Use new brands to compete at the lower price point so that your main brand does not suffer
Deploy Simple Price Actions — respond by lowering prices
Strategies for fighting low cost rivals
Differentiate your offerings
Add a low cost business
Switch to selling solutions
Become exclusively a low cost provider
Why are low cost competitors so effective and tough to fight
They only lose business to people that are cheaper than them and they don’t have to worry about rivals differentiating
When to differentiate your offerings
You can combine numerous differentiating factors (e.g. cool products and continuous innovation)
- consumers want the benefits your new offerings would provide
- you can reduce the costs of the benefits you would offer
EX— Computer maker HP’s restructuring has shrunk rival Dell’s cost advantage from 20% TO 10% and consumers appreciate the added benefits HP offers, such as instant delivery and the ability to see, feel, and tough computers in stores
When to add a low cost business
- Your traditional opedration will become more competitive as a result
- your low-cost venture will make more money than it would have as an independednt entity
- you can allocate adequate resources to the low-cost unit
Ex— Dow Cornings Xiameter unit —a low-cost provider of silicone products — sells only 350 of Dow’s 7000 offerings, so Xiameter doesn’t canabalize its parent’s sales. It schedules manufacturing when Dow’s factories are idle, sels only large orders, and offers no technical services. After launching Xiameter, Dow turned a $28 million loss in 2001 into a $500 million profit in 2005
When to switch to selling solutions
- There are nosynergies possible between tour existing enterprise and a low cost business
- the integration of your products and services provides unique value to consumers
ex— Australian mining company Orica sold explosives to stone quarries. When low cost players emerged, Orica began providing a new service: laser profiling rock faces to identify the best places to drill holes for explosives. The service improved customers’ rock yields reducing downstream processing costs — and making customers dependent on the company. Orica’s average sales are bigger than when it sold only explosives.
When to become exclusively a low cost provider
- There are no synergies possible between your existing enterprise and a low cost business
- a significant segment of your consumer market buys based on price
- you are willing to acquire significant new business capabilities
ex — ryanair changed every aspect of it’s business model to become a low-cost player. it replaced its entire diverse fleet with just one type of plane, began operating from secondary airports and moved from travel agency bookings to direct booking through call centers and the internet. It also eliminated business class, free meals, seat assignments, and cargo carrying
Determining Corporate espionage ethics frame work looks at (3)
Include one or more of the following
Are the TACTICS used to secure the information questionable since the appear to go beyond what is acceptable
The NATURE of the information being sought can be seen in some way as private or confidential
The PURPOSES for which the information is going to be used is against the publics interest
