Chapter Understanding Competition A Types of Competition Natural and Strategic Competition (TM 4-1) B Classifying Competitors Sources of Competition (TM 4-2) C Intensity of Competition Factors Contributing to Competitive Rivalry (TM 4-3) D Competitive Intelligence Knowing the Competition (TM 4-4) Sources of Competitive Information (TM 4-5) E Seeking Competitive Advantage Checklist for Understanding Industry Dynamics (TM 4-6) Porter’s Model of Industry Competition (TM 4-7) Industry Structure and Performance: Blue-Jeans Industry (TM 4-8) Business Systems Framework • Business System of a Manufacturing Company (TM 4-9) • Sources of Economic Leverage In the Business System (TM 4-10) • Plain-Paper Copier Strategy: Xerox vs Savin (TM 4-11) Seeking Competitive Advantage: Ground Rules (TM 4-12) Achieving Competitive Distinctiveness (TM 4-13) Strategies for Sustaining Competitive Advantage (TM 4-14) 194 195 CHAPTER 4: Understanding Competition 4-1 NATURAL AND STRATEGIC COMPETITION A Natural Competition: It refers to the survival of the fittest in a given environment Applied to the business world, it means that no two firms doing business across the board the same way in the same market can coexist forever B Strategic Competition: It is the studied deployment of resources and requires: • Adequate information surrounding the situation • Framework to understand the dynamic interactive system • Postponement of current consumption • Commitment to invest resources to an irreversible outcome • Ability to predict output consequences CHAPTER 4: Understanding Competition 196 4-2 SOURCES OF COMPETITION CUSTOMER NEED: LIQUID FOR THE BODY Existing: Thirst Latent: Liquid to reduce weight Incipient: Liquid to prevent aging INDUSTRY COMPETITION Existing Industries: (How can I quench my thirst?) Hard liquor Beer Wine Soft drink Milk Coffee Tea Water New Industry: Mineral water PRODUCT-LINE COMPETITION Me-Too Product: (What form of product I want?) Regular cola Diet cola Lemonade Fruit-based drink Improved Product: Caffeine-free cola Breakthrough Product: Diet and caffeine-free cola providing full nutrition ORGANIZATIONAL COMPETITION Type of Firms Existing Firms: Coca-Cola Pepsi-Cola Seven-Up (What brand I want?) 197 CHAPTER 4: Understanding Competition 4-3 FACTORS CONTRIBUTING TO COMPETITIVE RIVALRY • Opportunity potential • Ease of entry • Nature of product • Exit barriers • Homogeneity of the market • Industry structure or competitive position of firms • Commitment to the industry • Feasibility of technological innovations • Scale economies • Economic climate • Diversity of firms CHAPTER 4: Understanding Competition 198 4-4 KNOWING THE COMPETITION • Who is the competition—now? Five years from now? • What are the strategies, objectives, and goals of major competitors? • How important is a specific market to each competitor and what is the level of its commitment? • What are the competitors’ relative strengths and limitations? • What weaknesses make the competitor vulnerable? • What changes are competitors likely to make in their future strategies? • So what? What will be the effects on the industry, the market, and our strategy of all the competitors’ strategies? 199 CHAPTER 4: Understanding Competition 4-5 SOURCES OF COMPETITIVE INFORMATION PUBLIC What compet- • itors say about • TRADE PROFESSIONALS Advertising • Promotional • GOVERNMENT Manuals • SEC reports Technical • FIC Testimony papers • Press • Licenses • Lawsuits releases • Patents • Antitrust Speeches • Courses • Books • Seminars • Articles • Personnel • Suppliers/ • Lawsuits themselves materials • • INVESTORS • Annual meetings • Annual • Prospectuses • Stock/bond reports issues changes • Want ads What others • Books say about • Articles them • • • Newspaper • vendors • Antitrust Case studies • Trade press • State/ Consultants • Industry study reporters • Customers Environmental • Subcon- groups • Consumer groups federal tractors • analyst reports • agencies • National plans • Government programs Security Industry studies • Credit reports CHAPTER 4: Understanding Competition 200 4-6 CHECKLIST FOR UNDERSTANDING INDUSTRY DYNAMICS • Industry profit economics – Volume – Materials – Labor – Capital – Market penetration – Dealer strength • Ease of entry • Effect of integration • Effect of cyclical swings on supply and demand 201 CHAPTER 4: Understanding Competition 4-7 PORTER’S MODEL OF INDUSTRY COMPETITION CHAPTER 4: Understanding Competition 202 4-8 INDUSTRY STRUCTURE AND PERFORMANCE: BLUE-JEANS INDUSTRY 203 CHAPTER 4: Understanding Competition 4-9 BUSINESS SYSTEM OF A MANUFACTURING COMPANY CHAPTER 4: Understanding Competition 204 4-10 SOURCES OF ECONOMIC LEVERAGE IN THE BUSINESS SYSTEM 205 CHAPTER 4: Understanding Competition 4-11 PLAIN-PAPER COPIER STRATEGY: XEROX VS SAVIN CHAPTER 4: Understanding Competition 206 4-12 SEEKING COMPETITIVE ADVANTAGE: GROUND RULES • Position the firm so that its capabilities provide the best defense against the existing array of competitive forces • Influence the balance of forces through strategic moves, thereby improving the firm’s relative position • Anticipate shifts in the factors underlying the forces and responding to them, hopefully exploiting change by choosing a strategy appropriate to the new competitive balance before rivals recognize it 207 CHAPTER 4: Understanding Competition 4-13 ACHIEVING COMPETITIVE DISTINCTIVENESS • Market focus • Product differentiation • Alternative distribution channel • Selective pricing CHAPTER 4: Understanding Competition 208 4-14 STRATEGIES FOR SUSTAINING COMPETITIVE ADVANTAGE [...]...CHAPTER 4: Understanding Competition 2 04 4-10 SOURCES OF ECONOMIC LEVERAGE IN THE BUSINESS SYSTEM 205 CHAPTER 4: Understanding Competition 4- 11 PLAIN-PAPER COPIER STRATEGY: XEROX VS SAVIN CHAPTER 4: Understanding Competition 206 4- 12 SEEKING COMPETITIVE ADVANTAGE: GROUND RULES • Position the firm so that its capabilities... choosing a strategy appropriate to the new competitive balance before rivals recognize it 207 CHAPTER 4: Understanding Competition 4- 13 ACHIEVING COMPETITIVE DISTINCTIVENESS • Market focus • Product differentiation • Alternative distribution channel • Selective pricing CHAPTER 4: Understanding Competition 208 4- 14 STRATEGIES FOR SUSTAINING COMPETITIVE ADVANTAGE ... CHAPTER 4: Understanding Competition 4- 9 BUSINESS SYSTEM OF A MANUFACTURING COMPANY CHAPTER 4: Understanding Competition 2 04 4-10 SOURCES OF ECONOMIC LEVERAGE IN THE BUSINESS SYSTEM 205 CHAPTER 4: Understanding. .. 201 CHAPTER 4: Understanding Competition 4- 7 PORTER’S MODEL OF INDUSTRY COMPETITION CHAPTER 4: Understanding Competition 202 4- 8 INDUSTRY STRUCTURE AND PERFORMANCE: BLUE-JEANS INDUSTRY 203 CHAPTER... Scale economies • Economic climate • Diversity of firms CHAPTER 4: Understanding Competition 198 4- 4 KNOWING THE COMPETITION • Who is the competition now? Five years from now? • What are the strategies,