Supporting the Business-Level Strategy: Competitive and Cooperative Moves Chapter 6

1. Supporting the Business-Level Strategy: Competitive and Cooperative MovesChapter 6 Miles A. Zachary MGT 4380

2. Overview • Simulation Overview • Lecture • Competitive Dynamics • Competitive Moves • Cooperative Moves • Paper/Presentation Overview • Simulation

3. Competitive Dynamics • Competitive dynamics is the study of how firm action (moves) affects competitors, competitive advantage, and performance • Includes: • First-mover advantage • Entrainment • Disruptive innovation • Blue ocean strategy • Footholds • Bricolage • Self-displacement

4. First-Mover Advantage (FMA) • First-mover firms enter a market before other firms and tend to reap distinct benefits • First-mover advantage results when a first-moving firm is able to develop a dominant position in a developing market • First-movers may be able to establish early brand recognition and build strong customer loyalty • But, first-mover firms may have trouble establishing a competitive advantage: • Lack of institutional environment • High marketing/advertising expenses • Consumers slow to adopt product • Easy imitation

5. Entrainment • Entrainment strategy suggests that firms should time their internal processes with external (environmental) trends • Alternative theory to FMA; argues that while first-moving may be viable in some situations, it is not always optimal • Firms looking to entrain should be aware of dominant external pacers that are likely to direct consumers to their products • Ex.-Holiday movies release near their target holiday

6. Entrainment Original research from Zachary & Payne

7. Disruptive Innovation • Rooted in the concept of Schumpeterian innovation (destructive) • “[G]ale of creative destruction” – Joseph Schumpeter • Firms may have an opportunity to disrupt an existing market by creating a new product/technology • Competence-destroying innovations-major shift in technology; destroy existing firm’s product effectiveness • Competence-enhancing innovations-increase the efficiency of an existing product or technology • Firms able to effectively combine FMA and disruptive innovations are in a unique position to capture competitive advantages (e.g., Apple’s iPad) • This is rare as most innovations are not so quickly adopted • Firms must weigh their effectiveness in the new environment and whether they can sustain themselves during the slow growth

8. Blue Ocean Strategy • A blue ocean strategy attempts to create a new, untapped market rather than competing with rivals in an existing market • Tries to make competition irrelevant • Firms create new products to reach previously ignored sets of consumers • Ex.-Nintendo developed alternative games that appeal to traditionally non-gaming consumers • Ex.-Casella wines (Yellowtail) appealed to traditionally non-wine drinking crowds, creating a new consumer base

9. Footholds • Footholds are small positions firms intentionally create in a market in which it does not already compete • Similar to climbing, firms use strategic footholds to anchor a new position in a market to exploit • Can include either geographical positioning or market positioning • Footholds may ward off potential competitors by establishing an early positionor staking geographical claims • Ex.-Allsups convenient stores build locations in small towns to establish geographical advantages and discourage other stores from entering the limited market

10. Bricolage • A bricolage strategy describes using available resources in a unique combination to generate a new product or market • Bricolage can help firms overcome problems associated with limited resources • Successful bricolage can help create strategic resources • Ex.-Oo-La-Latte’s in Lubbock combined the ideas of a coffee shop with the sex appeal of Hooter’s • Ex.-Alamo Brewhouses combine traditional movie theaters with pub grub and atmosphere • However, if the resources are widely available to competitors, imitation may limit the competitive advantages of bricolage

11. Self-displacement • Self-displacement involves a leader firm moving aside and allowing a competitor to occupy a market leadership position in order to continue to develop new competitive advantages • Some scholars suggest that this is likely an optimal situation for firms as a result of the added costs associated with increasing the speed of innovation (time compression diseconomies) • Only in situations where the innovation has high competitive value and low market value should a firm self-renew (speed up innovation)

12. Responding to Competitors • Firms must often determine adequate responses to competitor actions; very difficult to decide • Likelihood of response is a factor of: • Awareness • Motivation • Capability • Responding firms must be aware of their competitor’s actions, motivated to respond, and capable of mounting a competitive response • Ex.-Schick introduces Quattro brand => Gillette preempts move and introduces Sensor 3 and Venus Devine

13. Action/Response Characteristics • The characteristics of a competitor’s action are important predictors of competitive response • Radicality-extent to which an action departs from existing norms • Magnitude-amount of resources needed to implement the action • Scope-number of competitors affected • Degree of threat-severity of affect • Such characteristics predict: • Response likelihood-p(response) • Response speed-how fast a firm responds • Response order-order within industry of response

14. Competitive Repertoire • Response could also be artifact of a firm’s competitive repertoire—a firm’s entire set of competitive action carried out in a given year • CR simplicity-an overwhelming preoccupation with a single type of action • CR non-conformity-tendency for action to depart from industry norms • CR inertia-level of activity a firm exhibits when altering its competitive stance • The state of a firm’s competitive repertoire may affect how capable a firm is of responding to competitor action

15. Multipoint Competition • When firms compete in multiple markets, executives must consider the effects on each market when crafting actions and responses • Mutual forbearance occurs when rivals do not act aggressively because each firm recognizes the other could retaliate in multiple markets • Awareness of mutual forbearance can help firms decide if and when to attack another firm; often, it dissuades firms from pursuing action • Ex.-United Airlines announces new routes in notoriously Southwest Airline’s territory => SW publically announces counteraction => nothing happened and both firms benefited

16. Responding to Disruptive Innovation • In the event a firm’s action creates a disruptive innovation (competence-destroying), firms choose from three (3) general responses • Ignorethe innovation-when firms believe the interruption is temporary • Respond on a different dimension-firms may respond to competitor action by acting on another line • Match the competitor move-respond directly by cannibalizing its traditional business; may attract new customer segments

17. Fighting Brands • When competitors attempt to lure a firm’s customers away with lower prices, firms may be tempted to lower prices to compete • Good idea in the short-run; bad in the long-run • May be difficult to increase prices in the future • A fighting brand is a lower-end brand that a firm introduces to protect the firm’s market share without damaging an existing brand • Ex.-GM’s Geo brand competes with inexpensive Japanese models • Some fighting brands are short-lived

18. Cooperative Moves • Firms can sometimes benefit more by cooperating rather than competing • Joint ventures • Strategic alliances • Co-location • Cooptition • Cooperating firms are able to share resources and lean on each others’ strengths • However, some firms lose control over operations, share valuable secrets, and may be exploited by partners

19. Joint Ventures • A joint venture is a cooperative arrangement that involves two or more firms each contributing to the new entity • Joint ventures allow firms to capitalize on shared opportunities and threats

20. Strategic Alliances • A strategic alliance involves a cooperative arrangement between two or more organizations that does NOT result in the creation of a new entity • While many industries have strategic alliances, the pharmaceutical industry has many

21. Co-location • Co-location refers to a situation in which goods and services offered under different brands are located in close proximity • By giving customers with a variety of choices, co-located firms can attract larger customer segments collectively

22. Co-optition • Co-optition highlights a complex interaction that involves cooperating and competing • Cooperate early in the value chain • Compete later in the value chain • Highlights how firms have different relationships with other firms • Customer • Supplier • Competitor