Describe the competitive speed in this industry
For Part I of the exercise, you can analyze the smartphone segment from 2007 on, using Apple (iPhone) as the first mover, Samsung (LG, etc.) as the second mover(s), Huawei, Lenovo, Xiaomi (and other emerging market producers) as the late movers. Or you can go back further into the history, and use Blackberry (developed by RIM) as the first mover. One paragraph of a brief summary of the industry is enough for this part. You can use References #6 “IDC’s report on smartphone market share” in the supplementary material (posted under this assignment) for industrial profile and major competitors.
For Part II of the exercise, only two questions are required:
Q1. Describe the competitive speed in this industry, e.g. is this a fast, standard, or slow-cycle market at the time the first mover initiated its product? (e.g. since Apple launched iPhone in 2007.)
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Order Paper NowQ3. Identify a first mover, second mover, or late mover, and evaluate whether it has been successful (in terms of market share, profit, growth potential, etc.), and explain why, using the concepts from the textbook as in References #2 (Hitt Page 146-148), and/or supplementary concepts (optional) as in References #4&5.
One or two paragraphs for each question is enough. Feel free to add answers to other questions.
You will need to read the supplementary material to prepare the answer (#1-3 are required, the rest
Presentation design by Charlie Cook
Chapter 5
Competitive Rivalry and Competitive Dynamics
Part 2 Strategic Actions: Strategy Formulation
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Studying this chapter should provide you with the strategic management knowledge needed to:
Learning 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.
Describe factors affecting the likelihood a competitor will respond to actions taken by its competitors.
Explain competitive dynamics in slow-cycle, in fast-cycle, and in standard-cycle markets.
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Where are we in the strategic management process?
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Applications
Ch5 Ex2 First mover advantage of smartphone makers
Learning objectives 4, 5, 6
factors affecting the likelihood a competitor will take competitive actions.
factors affecting the likelihood a competitor will respond to actions taken by its competitors.
competitive dynamics in slow-cycle, in fast-cycle, and in standard-cycle markets
Case Chipotle
Learning objectives 2, 3, 4, 5, 6
Especially, market commonality, resource similarity (LO2), action and response to action (LO4&5)
Video (optional): Inside Chipotle (Bloomberg)
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Prepare for Case Chipotle
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Discussion questions:
General questions from CaseGuideline posted on BB
Case-specific questions in Assignment#7 and as below
1. What business level strategy is Chipotle using in its main business segment? Cost leadership, differentiation, focused, or integrated?
2. Based on internal analysis, what is Chipotle’s core competency, if any? Do you think the business level strategy identified in Q1 fits Chipotle’s core competency?
3. Based on external analysis, how would you describe the competitive dynamics of the fast casual segment in the restaurant industry (higher price than fast service restaurants but lower price than full service restaurants), is it fast-cycle, slow-cycle, or standard-cycle market? What’s the typical strategy for market leaders in such a market (think of the speed of launching new products, brand name, market share, etc.)? What about fast service and full service segments? Do market leaders use different strategies in these segments?
4. Compare Chipotle and its major competitors (Taco Bell, Qdoba, Panera Bread, etc.), how would you describe their market commonality (in scope and in dependence/importance, customer in different age and income groups, international and domestic/US) and resource similarity (both tangible and intangible)?
5. Based on your analysis of the industry and competitors in Q3 and Q4, what do you recommend Chipotle to do to respond to the attack from its competitors, for example, when Taco Bell introduced menu items (steak burrito and burrito bowl) similar to Chipotle’s?
Definitions
Competitors
Are firms operating in the same market, offering similar products, and targeting similar customers.
Competitive Rivalry
Is the ongoing set of competitive actions and responses occurring between competitors.
Influences an individual firm’s ability to gain and sustain competitive advantages.
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Definitions
Competitive Behavior
The set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position.
Multimarket Competition
Firms competing against each other in several product or geographic markets.
Competitive Dynamics
The total set of actions and responses taken by all firms competing within a market.
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From Competitors to Competitive Dynamics
Competitors
To gain an advantageous market position
Competitive Behavior
Competitive actions
Competitive responses
Competitive Dynamics
Competitive actions and responses taken by all firms competing in a market
Engage in
Why?
How?
What Results?
What Results?
Competitive Rivalry
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Figure 5.1 From Competitors to Competitive Dynamics
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Competitive Rivalry’s Effect on Strategy
Success of a strategy is determined by:
The firm’s initial competitive actions.
How well it anticipates competitors’ responses to them.
How well the firm anticipates and responds to its competitors’ initial actions.
Competitive rivalry:
Affects all types of strategies.
Has a dominant influence on the firm’s business-level strategy or strategies.
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A Model of Competitive Rivalry
Firms are mutually interdependent
A firm’s competitive actions have noticeable effects on its competitors.
A firm’s competitive actions elicit competitive responses from its competitors.
Competitors feel each other’s actions and responses.
Marketplace success is a function of both individual strategies and the consequences of their use.
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A Model of Competitive Rivalry
Competitive Analysis
Market commonality
Resource similarity
Drivers of Competitive Behavior
Awareness
Motivation
Ability
Competitive Rivalry
Likelihood of Attack
First-mover benefits
Organizational size
Quality
Likelihood of Response
Type of competitive action
Actor’s reputation
Market dependence
Outcomes
Market position
Financial performance
Feedback
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Figure 5.2 A Model of Competitive Rivalry
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Competitor Analysis
Competitor analysis is used to help a firm understand its competitors.
The firm studies competitors’ future objectives, current strategies, assumptions, and capabilities.
With the analysis, a firm is better able to predict competitors’ behaviors when forming its competitive actions and responses.
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Market Commonality
Market commonality is concerned with:
The number of markets with which a firm and a competitor are jointly involved.
The degree of importance of the individual markets to each competitor.
Firms competing against one another in several or many markets engage in multimarket competition.
A firm with greater multimarket contact is less likely to initiate an attack, but more likely to more respond aggressively when attacked.
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Resource Similarity
Resource Similarity
How comparable the firm’s tangible and intangible resources are to a competitor’s in terms of both types and amounts.
Firms with similar types and amounts of resources are likely to:
Have similar strengths and weaknesses.
Use similar strategies.
Assessing resource similarity is difficult if critical resources are intangible rather than tangible.
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Figure 5.3 A Framework of Competitor Analysis
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Drivers of Competitive Behavior
Awareness is
the extent to which competitors recognize the degree of their mutual interdependence that results from:
Market commonality
Resource similarity
Awareness
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Drivers of Competitive Behavior (cont’d)
Motivation concerns
the firm’s incentive to take action
or to respond to a competitor’s attack
and relates to perceived gains and losses
Awareness
Motivation
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Drivers of Competitive Behavior (cont’d)
Ability relates to
each firm’s resources
the flexibility that these resources provide
Without available resources the firm lacks the ability to
attack a competitor
respond to the competitor’s actions
Awareness
Motivation
Ability
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Drivers of Competitive Behavior (cont’d)
A firm is more likely to attack the rival with whom it has low market commonality than the one with whom it competes in multiple markets.
Given the strong competition under market commonality, it is likely that the attacked firm will respond to its competitor’s action in an effort to protect its position in one or more markets.
Awareness
Motivation
Market Commonality
Ability
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Drivers of Competitive Behavior (cont’d)
The greater the resource imbalance between the acting firm and competitors or potential responders, the greater will be the delay in response by the firm with a resource disadvantage.
When facing competitors with greater resources or more attractive market positions, firms should eventually respond, no matter how challenging the response.
Awareness
Motivation
Resource Dissimilarity
Ability
Market Commonality
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Competitive Rivalry
Competitive Action
A strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position.
Competitive Response
A strategic or tactical action the firm takes to counter the effects of a competitor’s competitive action.
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Strategic and Tactical Actions
Strategic Action (or Response)
A market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse.
Tactical Action (or Response)
A market-based move that is taken to fine-tune a strategy:
Usually involves fewer resources.
Is relatively easy to implement and reverse.
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Factors Affecting Likelihood of Attack
First movers allocate funds for:
Product innovation and development
Aggressive advertising
Advanced research and development
First movers can gain:
The loyalty of customers who may become committed to the firm’s goods or services.
Market share that can be difficult for competitors to take during future competitive rivalry.
First-Mover Incentives
First Mover A firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position.
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Factors Affecting Likelihood of Attack (cont’d)
Second mover responds to the first mover’s competitive action, typically through imitation:
Studies customers’ reactions to product innovations.
Tries to find any mistakes the first mover made, and avoid them.
Can avoid both the mistakes and the huge spending of the first-movers.
May develop more efficient processes and technologies.
First Mover
Second Mover Incentives
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Factors Affecting Likelihood of Attack (cont’d)
Late mover responds to a competitive action only after considerable time has elapsed.
Any success achieved will be slow in coming and much less than that achieved by first and second movers.
Late mover’s competitive action allows it to earn only average returns and delays its understanding of how to create value for customers.
First Mover
Second Mover
Late Mover
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Smartphone makers: first, second, and later movers
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Apple and Samsung’s (1st and 2nd mover) market share is squeezed by later comers
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What other factors affect the success of first, second, and later movers?
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1. Types of innovation:
Disruptive innovation vs. sustaining innovation
Examples of disruptive innovations include:
personal computer vs. mainframe computer,
cell phones vs. fixed line phones,
smart phones vs. traditional cell phones (featured phones), etc.
What other factors affect the success of first, second, and later movers?
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2. Control of complementary assets
the upstream and downstream assets necessary to successfully commercialize an invention.
Examples include:
Apple’s app supply
Samsung’s strength in producing key components
Huawei’s strength in network equipment and relationship with telecomm providers who have adopted Huawei’s equipment in their infrastructure
Xiaomi’s alternative marketing and content/software offering
Huawei, Lenovo, & Xiaomi are close followers
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Source: WSJ, Dec 16, 2015, “China’s Huawei Hopes to Connect With U.S. Smartphone Market”, http://www.wsj.com/articles/chinas-huawei-hopes-to-connect-with-u-s-smartphone-market-1450294200 , accessed Dec 16, 2015.
Factors Affecting Likelihood of Attack (cont’d)
Small firms are more likely:
To launch competitive actions.
To be quicker in doing so.
Small firms are perceived as:
Nimble and flexible competitors
Relying on speed and surprise to defend competitive advantages or develop new ones while engaged in competitive rivalry.
Having the flexibility needed to launch a greater variety of competitive actions.
First Mover
Second Mover
Organizational Size- Small
Late Mover
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Factors Affecting Likelihood of Attack (cont’d)
Large firms are likely to initiate more competitive actions as well as strategic actions during a given time period
Large organizations commonly have the slack resources required to launch a larger number of total competitive actions
Think and act big and we’ll get smaller. Think and act small and we’ll get bigger. Herb Kelleher Former CEO, Southwest Airlines
First Mover
Second Mover
Organizational Size- Large
Late Mover
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Factors Affecting Likelihood of Attack (cont’d)
Quality exists when the firm’s goods or services meet or exceed customers’ expectations
Product quality dimensions include:
First Mover
Second Mover
Quality (Product)
Late Mover
Organizational Size
Performance
Features
Flexibility
Durability
Conformance
Serviceability
Aesthetics
Perceived quality
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Factors Affecting Likelihood of Attack (cont’d)
Service quality dimensions include:
Timeliness
Courtesy
Consistency
Convenience
Completeness
Accuracy
First Mover
Second Mover
Quality (Service)
Late Mover
Organizational Size
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Table 5.1 Quality Dimensions of Goods and Services
| Product Quality Dimensions |
| 1. Performance—Operating characteristics |
| 2. Features—Important special characteristics |
| 3. Flexibility—Meeting operating specifications over some period of time |
| 4. Durability—Amount of use before performance deteriorates |
| 5. Conformance—Match with preestablished standards |
| 6. Serviceability—Ease and speed of repair |
| 7. Aesthetics—How a product looks and feels |
| 8. Perceived quality—Subjective assessment of characteristics (product image) |
| Service Quality Dimensions |
| 1. Timeliness—Performed in the promised period of time |
| 2. Courtesy—Performed cheerfully |
| 3. Consistency—Giving all customers similar experiences each time |
| 4. Convenience—Accessibility to customers |
| 5. Completeness—Fully serviced, as required |
| 6. Accuracy—Performed correctly each time |
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Likelihood of Response
Responses to a competitor’s action are taken when the action:
Leads to better use of the competitor’s capabilities to gain or produce stronger competitive advantages or an improvement in its market position.
Damages the firm’s ability to use its capabilities to create or maintain an advantage.
Makes the firm’s market position becomes less defensible.
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Factors Affecting Likelihood of Response
Firms study three other factors to predict how a competitor is likely to respond to competitive actions:
Type of competitive action
Actor’s reputation
Market dependence
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Factors Affecting Strategic Response
Strategic actions receive strategic responses
Strategic actions elicit fewer total competitive responses.
The time needed to implement and assess a strategic action delays competitor’s responses.
Tactical responses are taken to counter the effects of tactical actions
A competitor likely will respond quickly to a tactical actions
Type of Competitive Action
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Factors Affecting Strategic Response (cont’d)
An actor is the firm taking an action or response
Reputation is the positive or negative attribute ascribed by one rival to another based on past competitive behavior.
The firm studies responses that a competitor has taken previously when attacked to predict likely responses.
Type of Competitive Action
Actor’s Reputation
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Factors Affecting Strategic Response (cont’d)
Market dependence is the extent to which a firm’s revenues or profits are derived from a particular market.
Competitors with high market dependence are likely to respond strongly to attacks threatening their market position.
Type of Competitive Action
Actor’s Reputation
Market Dependence
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Competitive Dynamics versus Rivalry
Competitive Dynamics
Ongoing actions and responses taking place between all firms competing within a market for advantageous positions.
Competitive Rivalry
Ongoing actions and responses taking place between an individual firm and its competitors for advantageous market position.
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Competitive Rivalry (Individual firms)
Market commonality and resource similarity
Awareness, motivation and ability
First mover incentives, size and quality
Competitive Dynamics (All firms)
Market speed (slow-cycle, fast-cycle, and standard-cycle
Effects of market speed on actions and responses of all competitors in the market
Competitive Dynamics versus Rivalry (cont’d)
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Competitive Dynamics
Competitive advantages are shielded from imitation for long periods of time and imitation is costly.
Competitive advantages are sustainable in slow-cycle markets.
All firms concentrate on competitive actions and responses to protect, maintain and extend proprietary competitive advantage.
Slow-Cycle Markets
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Figure 5.4 Gradual Erosion of a Sustained Advantage
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Competitive Dynamics (cont’d)
The firm’s competitive advantages aren’t shielded from imitation.
Imitation happens quickly and somewhat inexpensively.
Competitive advantages are not sustainable.
Competitors use reverse engineering to quickly imitate or improve on the firm’s products
Non-proprietary technology is diffused rapidly.
Slow-Cycle Markets
Fast-Cycle Markets
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Figure 5.5 Developing Temporary Advantages to Create Sustained Advantage
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Competitive Dynamics (cont’d)
Moderate cost of imitation may shield competitive advantages.
Competitive advantages are partially sustainable if their quality is continuously upgraded.
Firms
Seek large market shares
Gain customer loyalty through brand names
Carefully control operations
Slow-Cycle Markets
Fast-Cycle Markets
Standard-Cycle Markets
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