Competitive rivalry
| Competitive rivalry |
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| See also |
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.
Examples of Competitive rivalry
- In the fast food industry, McDonald’s and Burger King have been in a fierce competition for years. They constantly try to out-do each other by offering new menu items, better value deals, and more convenience for customers.
- In the automotive industry, Toyota and Honda have been competing for market share in the US for decades. They both offer a wide range of vehicles, from small cars to luxury SUVs, and constantly try to offer the best features and prices for their customers.
- In the technology industry, Apple and Microsoft have been competing for many years. They have both developed their own operating systems, software, and hardware devices, and are constantly trying to out-do each other and gain market share.
- In the airline industry, Delta and United Airlines have been competing for years. They offer a wide range of services, from low-cost flights to luxury business class seating, and they constantly try to offer the best deals and customer service to their customers.
Advantages of Competitive rivalry
An introduction to the list of advantages of competitive rivalry is that it can be used to drive innovation and market growth, while also leading to better prices and higher customer loyalty. The following are some of the advantages of competitive rivalry:
- Increased focus on innovation - Companies have to stay ahead of the competition in order to remain competitive, leading to a focus on innovation and the development of new products, services and technologies.
- Greater customer loyalty - Companies that are in competition with each other will strive to provide customers with better service and value for money. This can lead to higher customer loyalty and a greater market share for the company.
- Lower prices - Companies in competition with each other will often lower their prices in order to attract customers from their rivals. This is beneficial to customers as it leads to lower prices and more value for money.
- Increased market growth - Competition encourages companies to expand their markets and experiment with new strategies, leading to increased market growth and increased profits.
Limitations of Competitive rivalry
Competitive rivalry has several limitations, including:
- Lack of information: Companies may not have access to accurate information about the costs of their competitors, making it difficult to accurately compare costs and efficiency.
- Different strategies: Companies may have different strategies to compete in the market, making it difficult to compare their performance.
- Market instability: The market can be volatile and unpredictable, making it difficult to measure the success of a company's competitive strategy.
- Limited resources: Companies may have limited resources, such as capital or personnel, which can limit the effectiveness of their competitive strategies.
- Market segmentation: Companies may be limited to certain market segments, which can limit their ability to compete in a larger market.
The other approaches related to competitive rivalry are as follows:
- Strategic analysis: This technique involves assessing how a firm’s competitive position—its products, market share, brand image, and ability to differentiate its offerings—will affect its competitive environment.
- Industry analysis: This technique focuses on the competitive environment of the industry in which a company operates. It looks at the number of competitors, their market share, and how they compete.
- Resource-based view (RBV): This approach to competitive analysis looks at the internal resources of the company and how they can be used to gain a competitive advantage. It examines a company’s intangible assets—such as its brand, customer base, and intellectual property—and how they can be leveraged to create a competitive advantage.
- Value chain analysis: This technique looks at how a company’s activities—from raw materials to end product—contribute to its competitive advantage. It examines how the company can add value to its products and services and how it can leverage its position in the value chain.
In summary, competitive rivalry requires a comprehensive approach to analyze the competitive environment and the resources of a company in order to gain a competitive advantage. Companies must assess their current position in the industry and develop strategies to differentiate themselves from their competitors. This can be achieved through strategic analysis, industry analysis, resource-based view, and value chain analysis.
References
- 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
