Competitive rivalry is one of five aspect (force) of Five forces analysis. The intensity of competitive rivalry is the first of strength in the analysis of Porter's 5 forces aimed at analyzing the "difficulties" of the market. In a very competitive market, where companies outdo each other in pursuit of a client, margins are usually relatively low. It is worth noting, however, that competition can not only take place at the price level. Companies can usually have accurate knowledge about the costs of their suppliers. Managers are able to parallel costs and employment efficiency with other organization. Additionally, financial agency can gather knowledge about a group that can be used to monitoring efficiency. Michael E. Porter (1998)
Competition in the industry is usually a form of struggle for a place when using tactics (for example, competition price, advertisement, new products). This competition has an incentive motivation when companies feel competitive pressure or see a chance to improve their position. In mostly organization, competitive movements of one company will have a noticeable influence on competition, which will then be retaliated to counteract efforts. Companies are interdependent, so a model of action and reaction can hurt all organizations and the industry. Some types of rivalry (for instance, competition price) are very volatile and negatively affect the profitability of the industry. Other tactics (for instance, advertisement) can positively affect the industry because they increase demand or increase the diversity of products.
Enterprises may also try to achieve an advantage through:
- Distinguishing your product from others - for example by improving it, offering additional accompanying services or through intensive promotion of your brand.
- Creating links with clients - for example by creating loyalty programs, using friendships and friendships, or even through vertical diversification, i.e. acquiring shares in a client's company.
- Creating or using new, non - standard distribution channels.
- Price competition - offering products at a lower price by giving up a part of the margin or reducing production costs.
Factors influencing the level of competitive competition
The intensification of competitive rivalry is different in different markets. Intensity of rivalry depends on:
- cost of building new factories and infrastructure,
- number of competitors on the market,
- monopolistic or oligopolistic market character,
- government attitude towards concentration of capital,
- speed of industry growth,
- quantity and quality of technology innovation,
- level of fixed cost needed to maintain market position,
- high cost of exiting the industry (high barriers of exit):
specific assets, the exit costs have been fixed, strategic relations, emotional barriers, government and social restrictions,
- high demand and low supply,
- bargaining power of customers,
- low customer switching costs,
- the strategic nature of the market,
- low level of product differentiation,
- high fixed costs,
- high storage costs,
- no switching costs,
- different competitors,
- high strategic rates.
- Chae, S., & Heidhues, P. (2004). Buyers' alliances for bargaining power. Journal of Economics & Management Strategy, 13(4), 731-754.
- Porter, M. E. (1979). How competitive forces shape strategy Harvard Business Review, 137-145.
- Michael E. Porter (1998). Clusters and the New Economics of Competition Harvard Business Review, 83.
Author: Sylwia Wierciak