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Strategy Dynamics Course - Class 7 – Competition

NOTE: The frameworks in this class can be applied on their own, as well as being used as part of a more complete business model.

Just three rivalry mechanisms cover all competitive interactions between firms. For customers these are:

  • winning new customers
  • stealing customers from rivals
  • obtaining a larger share of business from shared customers

Organizations may also compete for other resources, such as employees or providers of funds, making the mechanisms equally relevant to public services and voluntary groups. This class provides frameworks for laying out and quantifying how customers or other resources are flowing between competitors, and the implications of these processes for how performance develops over time.

Many situations involve several competing organizations, or many, so the class also offers ways to understand and simplify these complex interactions. The class also explains some consequences for the way in which industries develop, such as the way in which entry and exit of competitors interacts with growth and profitability, and the phenomenon of successive product generations.

Key issues addressed

  • Type-1 rivalry – capturing new customers, especially in growing markets
  • Type-2 rivalry – stealing customers from competitors, especially in mature markets
  • Type-3 rivalry – fighting for share of sales to non-exclusive customers
  • Rivalry for other resources, especially staff
  • How the three types of rivalry may operate together
  • How successive product generations renew the competitive process
  • Dealing with multiple competitors
  • Grouping competitors according to similarities to simplify complicated cases
Class 7.0 – Competition: Summary - (48 min)
Competition, in strategic terms, is almost entirely focused on rivalry for resources – customers in particular, but also staff, and sometimes other resources such as limited sources of supply. In type-1 competition, typical in new or growing markets, rivals fight to capture potential customers before they are won by competitors instead. In type-2 rivalry, common in more mature markets, competitors work to steal existing customers from each other. In type-3 competition, rivals must work constantly to capture every sale they can to customers who are completely disloyal. The three types of competition can also operate together, with the importance of each depending on the industry involved and its stage of development.
Class 7.1 – Dealing with many competitors - (13 min)
We usually have to deal with more than just a single competitor, so this segment shows how to lay out rivalry when several competitors are involved. If there are large numbers of competitors, combine less-important rivals into groups. In type-1 rivalry, the potential market is used up faster by more competitors, which can limit sales and profits for all. When customers switch between competitors in type-2 rivalry, all lost customers must be re-won by others. In type-3 rivalry, more competitors simply fight over the same total sales rate in each period.
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Class 7.2 – Industry dynamics - (12 min)
The interaction between competitors as markets develop has important consequences for sales growth and profitability. This class looks, first, at how growth and early profitability can attract many new rivals into an industry, after which profitability is damaged and some firms fail, so that profitability may finally recover. Secondly, the video discusses the phenomenon of type-1 competition repeating in waves of innovation, as each generation of a product is superseded by later and better products from all competitors.
This course is supported by a series of worksheets provided in both PDF format and as Sysdea online models.
Three Sysdea models illustrating how to deal with the three types of rivalry for a restaurant business are used with Class 7.0
An extended Sysdea model looking at many competitors for a restaurant business is used with Class 7.1

free access for teachers - login or register Additional materials are available to registered teachers as well as free access to the complete course. Login here or register here for more information.

Other resources and links

Books

Constantinos Markides and Paul Geroski (2004) Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate New Markets, Jossey Bass.
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Besanko, D., Dranove, D., Shanley, M. and Schaefer, S. (2007) The Economics of Strategy, 4th edn, Wiley, Chichester.
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Chan Kim, W. and Mauborgne, R. (2004) Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, Harvard Business School Press, Boston.
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Dutta, P. (1999) Strategies and Games: Theory and Practice, MIT Press, Boston, MA.
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(eds) Faulkner, D. and Campbell, A., The Oxford Handbook of Strategy, Blackwell, Oxford, Amazon.com   Amazon UK   Amazon Canada

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