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Chap 4 understanding competition

Chapter 4
Understanding Competition

A. Types of Competition
1. Natural and Strategic Competition (TM 4-1)
B. Classifying Competitors
1. Sources of Competition (TM 4-2)
C. Intensity of Competition
1. Factors Contributing to Competitive Rivalry (TM 4-3)
D. Competitive Intelligence
1. Knowing the Competition (TM 4-4)
2. Sources of Competitive Information (TM 4-5)
E. Seeking Competitive Advantage
1. Checklist for Understanding Industry Dynamics (TM 4-6)
2. Porter’s Model of Industry Competition (TM 4-7)
3. Industry Structure and Performance: Blue-Jeans Industry (TM 4-8)
4. 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)
5. Seeking Competitive Advantage: Ground Rules (TM 4-12)

6. Achieving Competitive Distinctiveness (TM 4-13)
7. 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 do 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 do 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



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