Market Signals

Question 1

What is a Market Signal?

Answer 1

Anything done by a Rival that directly or indirectly communicates competitively relevant information.

Porter, Competitive Strategy — P. 112.

Naturally, a prerequisite to accurately interpreting a signal’s weight and truthfulness is a sophisticated competitor analysis.

Question 2

What are the two Functions of a Market Signal?

Answer 2

To inform or misinform the market regarding one’s motives, intentions, or goals.

Porter, Competitive Strategy — P. 113.

Detecting honest signals requires you to understand a Rival’s capabilities, competitive strategy and how a particular signal can aligns therewith.

Question 3

What is the most informative means of transmitting Market Signals?

Answer 3

Public Announcements.

Porter, Competitive Strategy — P. 113.

Question 4

What is a Public Announcement?

Answer 4

A formal, non-private communication made by a Firm regarding itself, a Rival(s), or the market.

Porter, Competitive Strategy — P. 113.

These can occur in a variety of media — official press releases, speeches by management to securities analysts, interviews with the press, etc. — and they can vary greatly in their degree of publicity.

Question 5

What are the distinct Signalling Functions of Public Announcements?

Answer 5

• Assess Rival reactions to an action.
• Avoid costly simultaneous actions.
• Publicly commit to a particular action.
• Coalesce internal support for an action.
• Communicate with the financial industry.
• Preempt Rivals from taking similar action.
• Nudge the industry toward a particular direction.
• Threaten retailiation if a Rival takes certain action.
• Minimise Rival retaliation to a forthcoming action, especially if it diverges from industry standard.
• Communicate pleasure or displeasure, often regarding industry conditions or competitiveness.

Porter, Competitive Strategy — P. 113.

An entire competitive battle can be waged through announcements before a single dollar of resources is expended.

Question 6

What is a Cross-Parry?

Answer 6

A retaliation by Firm Y in Market B against Firm X for an action it took in Market A, often done to signal displeasure without starting a war.

This is otherwise known as an ‘Indirect Retaliaton’.

Porter, Competitive Strategy — P. 120.

This can be particularly effective if the two Firms’ respective market shares differ greatly.

Question 7

What is a Fighting Brand?

Answer 7

A brand introduced to punish or threaten a Rival, usually serving as deterrants, mitigants, or assailants against a competitive attack.

Porter, Competitive Strategy — P. 121.