Dr.

Mahmoud Damaty

November 2024
Competitive
Dynamics

Presented by Omar Saeed & Rose khaled

Overview 02

Overview Page04

Overview
Frameworks Page09

Competitor Analysis Page 11

Drivers of Competitive Behavior Page19

Competitive Rivalry Actions Page21

Competitive Dynamics & Market Cycle Speed Page27

Competitive Rivalry VS Dynamics Influences Page28

Quick Recap Page29

Thank You Page33

Hello! 03

“The world is a global battlefield, and only the

adaptable shall prevail.”

Kenichi Ohmae, Japanese Organizational

Theorist
What is Competitive Dynamics? 04

Competitive dynamics, in the context of strategic management, refers to the

total set of actions and responses taken by all firms competing within a market.

It's essentially to study how surrounding companies interact and react to each
other's actions in the marketplace.

The Bigger Picture

What is Competitive Rivalry? 05

Competitive rivalry, Ongoing competitive actions and responses between individual

competitors.

t's essentially to study how companies interact and react to each other's moves in the
marketplace. It is a narrower approach than competitive dynamics.

The One VS One Battle

Hello Again! 06

“Keep your friends close, and your enemies

closer.”
Sun Tzu, Chinese General, Strategist, and
Philosopher
What is a Competitor? 07

Competitors, In the world of business, a competitor is any individual,

company, or organization that offers similar products or services to the
same target audience as other businesses.

They essentially vie for the same customers and market share, posing a
challenge to business's growth and profitability.

The Players
Competitive Environment 08
From Competitors to Competitive Dynamics 09
Competitive Rivalry Framework 10

Drivers of Competitive Behavior

Competitive Analysis
Awareness
Market Commonality
Motivation
Resources Similarity
Capability

Feedback

Competitive Rivalry
1. Likelihood of actions
a. First mover benefits
Outcomes
b. organizational size
Market Position
2. Likelihood of response
Financial Performance
a. Type of competitive action
b. Actor Reputation
c. Market Dependence

Model of Competitive Rivalry

Over time firms take competitive actions/reactions.

Pattern shows firms are mutually interdependent.
Firm level rivalry is usually dynamic and complex.
Foundation for successfully building and using capabilities and core competencies to gain an advantageous market
position.
Competitor Analysis 11

Competitor analysis, is used to help a firm understand its competitors.

It is like scouting the opposing team. Businesses identify their main rivals, study their plays
(products, pricing, marketing), and figure out their strengths and weaknesses. This helps
businesses find their own edge, whether it's offering something unique, improving their game, or
reaching fans (customers) in a new way. Ultimately, it's about making smarter decisions to stay
ahead of the competition.

1. Identify your competitors: The first step is to identify the main competitors.
2. Gather information about competitors: Once businesses identify their competitors, they need
to gather information about them.
3. Analyze competitors' strengths and weaknesses: Once gathered information about
competitors, businesses need to analyze their strengths and weaknesses.
4. Take action: The final step is to take action based on competitor analysis. This may involve
making changes to products or services, pricing, marketing strategies, or overall business
strategy.
Quick Discussion A 12

Rose and Omar are two food

truck owners operating in the
same location. Rose's truck
a
Hi Omar, I am thinking of specializes in classic American
in
new meal package to ga
better market share, be
fast food, while Omar's offers a
prepared! variety of sandwiches and
beverages.

ink of my
Hi Rose, Let me th To gain a competitive edge,
chances.
Rose has introduced a new
strategy: the value meal. This
package offers a sandwich and
a juice at a price point similar
to Omar's single sandwich.

How do you think Omar will

react?
The Game Theory 13

Game Theory:
Game theory provides a framework for
analyzing strategic interactions between
players (in this case, competing firms).
It helps predict how firms will behave in
different competitive scenarios, taking
into account their rivals' potential
actions and payoffs.

Implications for
Competitive Dynamics:
Game theory can be used to model
competitive interactions, analyze the
likely outcomes of different strategies,
and identify optimal courses of action. It
helps firms anticipate their rivals' moves
and make informed decisions.

John von Neumann and Oskar

Morgenstern (1944).
Market Commonality 14

Market Commonality, is the number of markets in which a firm and competitor are
competing and involved.

Key Aspects of Market Commonality:

Overlapping Markets: Firms with high market commonality compete in many of the same
geographic regions, product categories, or customer segments. For example, Coca-Cola
and PepsiCo have high market commonality because they both sell similar beverages in
many of the same countries.

Intensity of Competition: High market commonality often leads to intense rivalry, as

companies try to capture market share. This can result in price wars, aggressive marketing
campaigns, and rapid product innovation.

Strategic Importance: Understanding market commonality is crucial for competitor

analysis. It helps companies anticipate how their rivals might react to their actions and
develop effective competitive strategies.
Resource Similarity 15

Resource Similarity, is the extent to which a company's tangible and intangible

resources are comparable to a competitor's in terms of type and amount. Essentially, it's
about how alike your resources are to your rivals.

Types of Resources:

Tangible Resources: These are physical assets like manufacturing facilities, equipment,
financial capital, and human resources.

Intangible Resources: These are non-physical assets like brand reputation, patents,
trademarks, organizational culture, and knowledge.
Market Commonality and Resource Similarity Matrix 16

High

Market
Commonality

LOW

LOW Resource High

Similarity

The shaded area represents the degree of market commonality and resource similarity between two firms.

Resource Endowment A Resource Endowment B

Quick Discussion B 17

Pepsi and Coca-Cola are the

two most popular carbonated
I prefer Coke! soft drink brands in the
world. They are both made
with carbonated water, sugar,
caffeine, phosphoric acid,
caramel color, and natural
fer Pepsi!
I pre flavors. However, there are
some subtle differences in
their formulas that give them
their unique tastes.

What do you think is their

market commonality and
resources similarity matrix?
Pepsi and Cocacola Matrix 18

High

Market
Commonality

Resource
High
Similarity
Competitive Rivalry Framework Recap

Drivers of Competitive Behavior

Competitive Analysis
Awareness
Market Commonality
Motivation
Resources Similarity
Capability

Feedback

Competitive Rivalry
1. Likelihood of actions
a. First mover benefits
Outcomes
b. organizational size
Market Position
2. Likelihood of response
Financial Performance
a. Type of competitive action
b. Actor Reputation
c. Market Dependence

Model of Competitive Rivalry

Over time firms take competitive actions/reactions.

Pattern shows firms are mutually interdependent.
Firm level rivalry is usually dynamic and complex.
Foundation for successfully building and using capabilities and core competencies to gain an advantageous market
position.
Drivers of Competitor Behavior 19

Drivers of Competitor Behavior, the factors that influence how companies act and react
within a competitive landscape.

Awareness: How well a company knows its rivals, their actions, and the competitive
landscape, including market commonality and resource similarity.

Motivation: The driving forces behind a company's competitive actions, such as

market share goals, profit motives, or the desire for first-mover advantage.

Capability: A company's resources, capabilities, and organizational structure that

enable it to take action and respond to competitors. Without available resources,
firms cannot either attack a competitor firm or respond for defense.
Competitive Rivalry Framework Recap

Drivers of Competitive Behavior

Competitive Analysis
Awareness
Market Commonality
Motivation
Resources Similarity
Capability

Feedback

Competitive Rivalry
1. Likelihood of actions
a. First mover benefits
Outcomes
b. organizational size
Market Position
2. Likelihood of response
Financial Performance
a. Type of competitive action
b. Actor Reputation
c. Market Dependence

Model of Competitive Rivalry

Over time firms take competitive actions/reactions.

Pattern shows firms are mutually interdependent.
Firm level rivalry is usually dynamic and complex.
Foundation for successfully building and using capabilities and core competencies to gain an advantageous market
position.
Competitor Rivalry Action Factors 20

First-Mover Incentives: A firm that takes an initial competitive action, in order to build or
defend its competitive position.

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 can be difficult for competitors to take during future competitive rivalry.
Competitor Rivalry Action Factors 21

Second Mover Incentives: A firm that responds to the first mover's competitive action,
typically through imitation.

It studies customers' reactions to product innovations.

Tries to find any mistakes the first mover made and avoid them.
This allows them to avoid both the mistakes and the huge spending of the first-
movers.
May develop more efficient processes and technologies.

Late Mover: A firm that 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.
Competitor Rivalry Action Factors 22

Organizational Size: Refers to the magnitude or scale of an organization.

It's a way to understand how large or small a company is, and this size significantly
influences various aspects of its structure, operations, and even its behavior in the
market.

Small Firm:
Rely on speed and surprise to defend competitive advantages or develop new
ones while engaged in competitive rivalry.
Have the flexibility needed to launch a greater variety of competitive actions.
More likely to launch competitive actions and be faster doing so.

Large Firm:
Likely to initiate more competitive actions during a given time period due to
having slack (extra unused) resources.
Usually slower to respond to strategic actions due to greater bureaucracy.
Hello there! 23

“Think and act big and we'll get smaller. Think and
act small and we'll get bigger.”

Herb Kelleher, Former CEO, Southwest

Airlines
Competitive Actions 24

ACTOR RESPONDER

An actor is a firm that takes the initiative to make a A reactor firm that responds to a competitive action
significant competitive move. They are the first movers, initiated by another firm (the actor). They are essentially
proactively shaping the competitive landscape. forced to react to maintain their market position.

Characteristics: Characteristics:

Proactive: They anticipate opportunities or threats Defensive: Their actions are primarily driven by
and act decisively. the need to protect their market share and
Innovative: They often introduce new products, competitive position.
services, or business models. Adaptive: They adjust their strategies and tactics
Risk-taking: They are willing to take calculated risks in response to the actor's moves.
to gain a competitive advantage. Cautious: They may be more risk-averse than
Resourceful: They possess the resources and actors.
capabilities to support their actions. Resource-constrained: Their ability to respond
may be limited by their resources and capabilities.
Competitor Rivalry Response Factors 25

Competitive Actions, a strategic or tactical action taken by a firm to build or defend its
competitive advantages or increase its market share.

Competitive Response, a strategic or tactical action taken by a firm to counter the effect of a
competitor’s competitive action.

Strategic Action or Response, market based move that involves a significant commitment of
organizational resources and is difficult to implement or reverse.

Tactical Action or Response, market based move that is taken to fine tune a strategy, that
involves fewer resources and easy to implement or reverse.

Actions Response
Competitor Rivalry Response Factors 26

Firm's Reputation: Reputation is also any 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.

Market Dependence: 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.
Competitive Rivalry Framework Recap

Drivers of Competitive Behavior

Competitive Analysis
Awareness
Market Commonality
Motivation
Resources Similarity
Capability

Feedback

Competitive Rivalry
1. Likelihood of actions
a. First mover benefits
Outcomes
b. organizational size
Market Position
2. Likelihood of response
Financial Performance
a. Type of competitive action
b. Actor Reputation
c. Market Dependence

Model of Competitive Rivalry

Over time firms take competitive actions/reactions.

Pattern shows firms are mutually interdependent.
Firm level rivalry is usually dynamic and complex.
Foundation for successfully building and using capabilities and core competencies to gain an advantageous market
position.
Competitive Dynamics & Market Cycle Speed 27

Market Cycle Speed, refers to the time it takes for a market to complete a full cycle, moving from
a peak (bull market) to a trough (bear market) and back to a new peak.

Slow: Imitation takes long periods of time and is very costly. (e.g., utilities).

Firms concentrate on competitive actions and responses to protect, maintain, and extend
proprietary competitive advantage.

Standard: Imitation takes moderate periods of time and is costly. (e.g., automotive).

Firms Seek large market shares, gain customer loyalty through brand names, and carefully
control operations.

Fast: Imitation happens quickly and is less costly. (e.g., apps).

Competitors use reverse engineering to quickly imitate or improve products.

Firms are in a constant race where a lead can quickly disappear.
Competitive Rivalry VS Dynamics Influences 28

Competitive Rivalry: is between two firms, Influenced by:

Market commonality and resource similarity

Awareness, Motivation and Capability
First mover incentives and firm size

Competitive Dynamics: is industry level, Influenced by:

Aggregate of all firm rivalries in the industry

Market cycle speed
Quick Recap 29

COMPETITIVE COMPETITIVE COMPETITIVE

DYNAMICS RIVALRY ADVANTAGES

Scope: Broad Scope: Narrow, Two Scope: Internal innovation

Firms
Focus: Actions and Focus: Internal to the
responses of all Focus: Direct interaction company – its resources,
firms in a market between two specific capabilities, and strategic
competitors choices
Quick Recap 30

Drivers of Competitive Behavior

Competitive Analysis
Awareness
Market Commonality
Motivation
Resources Similarity
Capability

Feedback

Competitive Rivalry
1. Likelihood of actions
a. First mover benefits
Outcomes
b. organizational size
Market Position
2. Likelihood of response
Financial Performance
a. Type of competitive action
b. Actor Reputation
c. Market Dependence

Model of Competitive Rivalry

Over time firms take competitive actions/reactions.

Pattern shows firms are mutually interdependent.
Firm level rivalry is usually dynamic and complex.
Foundation for successfully building and using capabilities and core competencies to gain an advantageous market position.
Quick Recap 31
Wake up! 32

Do you know who is this?

Ray Kroc, McDonald’s Founder
Wake up! 33
Thank You