Management Chapter 5 Firms That Are Diversified Across Markets

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Chapter 5: Competitive Rivalry and Competitive Dynamics

Teaching Note

It can be instructive to compare the rapid response by airlines to competitors’ tactical

5-6b Actor’s Reputation

To predict the likelihood of a competitor’s response to a current or planned action, the

firm studies the responses that that competitor has taken previously when attacked because

past behavior is assumed to be a reasonable predictor of future behavior.

Teaching Note

Likely effects of reputation include the following:

• Actions initiated by firms with a previous history of success will be more likely to

5-6c Market Dependence

Market dependence denotes the extent to which a firm’s revenues/profits are derived from

a particular market. Firms that are highly concentrated in—or dependent on—an industry

Chapter 5: Competitive Rivalry and Competitive Dynamics

5-7 COMPETITIVE DYNAMICS

Teaching Note

Recall that Figure 5.1 illustrates the potential outcomes of inter-firm rivalry.

Whereas competitive rivalry concerns the ongoing actions and responses between a firm

5-7a Slow-Cycle Markets

Slow-cycle markets are those in which the firm’s competitive advantages are shielded

from imitation, often for long periods of time, and where imitation is costly. Thus,

competitive advantages are sustainable in slow-cycle markets.

Teaching Note

As noted in Chapter 3, a difficult-to-understand and costly-to-imitate advantage can be

Chapter 5: Competitive Rivalry and Competitive Dynamics

Teaching Note

Providing some examples may help students understand what is involved in

establishing and defending a one-of-a-kind competitive advantage. The following are

some possibilities:

• IBM’s historical dominance of the mainframe computer industry

STRATEGIC FOCUS

Swiss Watchmakers: The Eroding of a Long-Lasting Competitive Advantage While

Competing in a Slow-Cycle Market?

Prior to the 1970s, Swiss watchmakers held a virtual monopoly position in the luxury

watch segment. However, in recent decades, consumer preferences have changed

Teaching Note

Discuss how Swiss watchmakers exemplify the attributes of a slow-cycle market—an

inability or at least costly ability to imitate and long-lasting competitive advantage. Ask

Figure Note:

The sustainability of competitive actions in slow-cycle markets is illustrated in Figure

5.4.

Chapter 5: Competitive Rivalry and Competitive Dynamics

FIGURE 5.4

Gradual Erosion of a Sustained Competitive Advantage

As indicated by Figure 5.4, a firm operating in a slow-cycle market may be able to retain

its competitive advantage over time.

5-7b Fast-Cycle Markets

Fast-cycle markets are those in which the firm’s competitive advantages aren’t shielded

from imitation and where imitation happens quickly and somewhat inexpensively through

reverse engineering and technology diffusion. Competitive advantages aren’t sustainable

in fast-cycle markets.

The technology often used by fast-cycle competitors isn’t proprietary, nor is it protected

Figure Note:

Figure 5.5 can be used to discuss how competitive advantage would unfold in a fast-

cycle market.

Chapter 5: Competitive Rivalry and Competitive Dynamics

FIGURE 5.5

Developing Temporary Advantages to Create Sustained Advantage

As illustrated, one way that firms might sustain a competitive advantage is to move

Teaching Note

The following incremental or step-by-step approach has been prescribed to manage

competitive advantages in fast-cycle markets.

1. Disrupt the status quo: A firm should identify new opportunities to meet customer

needs, thereby shifting or changing the basis of competition.

Teaching Note

As discussed earlier, the contemporary competitive landscape requires that firms (1)

introduce more new products, (2) develop broader product lines, and (3) provide more

rapid product upgrades.

5-7c Standard-Cycle Markets

Standard-cycle markets are those in which the firm’s competitive advantages are

moderately shielded from imitation and where imitation is moderately costly. Competitive

Chapter 5: Competitive Rivalry and Competitive Dynamics

Because of large volumes, the size of mass markets, and the need to develop scale

economies, the competition for market share is intense in standard-cycle markets. P&G

and Unilever are direct competitors—they share multiple markets, have similar types and

ANSWERS TO REVIEW QUESTIONS

1. Who are competitors? How are competitive rivalry, competitive behavior, and

competitive dynamics defined in the chapter?

Competitors are firms competing in the same market, offering similar products, and

targeting similar customers. Competitive rivalry is the ongoing set of competitive actions

2. What is market commonality? What is resource similarity? In what way are these

concepts the building blocks for a competitor analysis?

Market commonality refers to the number of markets with which competitors are jointly

involved and their importance to each. Resource similarity refers to how comparable

3. How do awareness, motivation, and ability affect the firm’s competitive behavior?

As shown in Figure 5.2, market commonality and resource similarity influence the

drivers (awareness, motivation, and ability) of competitive behavior. In turn, the drivers

4. What factors affect the likelihood a firm will take a competitive action?

In addition to market commonality, resource similarity, and awareness, motivation, and

ability, three more specific factors affect the likelihood a competitor will take competitive

Chapter 5: Competitive Rivalry and Competitive Dynamics

5. What factors affect the likelihood a firm will initiate a competitive response to a

competitor’s action(s)?

The type of competitive action (strategic or tactical) the firm took, the competitor’s

reputation for the nature of its competitor behavior, and its dependence on the market in

6. What competitive dynamics can firms expect to experience when competing in slow-

cycle markets? In fast-cycle markets? In standard-cycle markets?

Competitive dynamics concerns the ongoing competitive behavior occurring among all

firms competing in a market for advantageous positions. Market characteristics affect the

Chapter 5: Competitive Rivalry and Competitive Dynamics

MINI CASE

The Ripple Effect of Supermarket Wars: Aldi Is Changing the Markets in Many

Countries

Note: To prepare students for class discussion and to introduce them to the

fundamentals of the Strategic Management process, each chapter Mini-Case is

prepared as an auto-graded Guided Case Analysis activity in MindTap™. More

information below.

Founded in 1913 in Essen, Germany, Aldi has grown into a global grocery store chain

Teaching Note

The focus of fast-cycle competition is competitive disruption, an approach where

competition is based on one set of resources and then shifted to another—in other

Chapter 5: Competitive Rivalry and Competitive Dynamics

Answers to Case Discussion Questions

1. Using materials in the case and items to which you gain access through a search, describe

how Aldi is creating competitive rivalry in the retail grocers’ industry.

Students’ answers should include at least one reference to additional information obtained

2. As explained in this chapter’s Opening Case, Amazon purchased Whole Foods. How will

this transaction affect Aldi as it seeks to expand its presence in the United States? What

competitive actions might Aldi take in response to Amazon’s purchase of Whole Foods?

Amazon’s Whole Foods is focused on a very different part of the grocery market.

3. Using concepts and actions explained in this chapter, decide if Aldi is more likely to

respond to any strategic actions Amazon might initiate through Whole Foods or if

Amazon through Whole Foods is more likely to respond to any strategic action Aldi

takes. Be prepared to justify your decision.

Students’ answers to this opinion-based question will vary but should demonstrate

reasoned support for their opinions. Some students may believe that Amazon/Whole

4. In a competitive rivalry sense, explain the actions (strategic and/or tactical) you believe

Walmart and Costco will take to respond to Aldi’s intentions to have 2,500 U.S. stores by

2020.

Students will present several possible solutions to this question. Some may suggest that

Chapter 5: Competitive Rivalry and Competitive Dynamics

ADDITIONAL QUESTIONS AND EXERCISES

The following questions and exercises can be presented for in-class discussion or assigned as

homework.

Application Discussion Questions

1. Have students read the popular business press (e.g., Business Week, Fortune, Fast

Company), and identify a strategic action and a tactical action taken by firms

approximately two years ago. Next, they should use the Internet to search the popular

business press to see if and how competitors responded to those actions. They should be

able to explain the actions and responses and link their findings to the discussion in this

chapter.

Ethics Questions

1. Are there some industries in which ethical practices are more important than in other

industries? If so, name the industries that are ethical, and explain how the competitive

actions and competitive responses might differ for these industries compared with a

Chapter 5: Competitive Rivalry and Competitive Dynamics

3. A second mover is a firm that responds to a first mover’s competitive actions, often

through imitation. Is there anything unethical about how a second mover engages in

competition? Why or why not?

INSTRUCTOR’S NOTES FOR MINDTAP

Cengage offers additional online activities, assessments and resources inside MindTap,

our online learning platform. Here is a comprehensive listing of the activities available

within each chapter of MindTap for Hitt, Ireland Hoskisson’s Strategic Management:

Competitiveness and Globalization, 13th edition:

are prepared to succeed in the Strategic Management course.

Chapter Level Resources:

• What Would You Do Video

• MindTap Reader (eBook)

• Assignments:

o Multiple Choice Quiz

Course Level Case Resources:

• Text Cases (Readings)

• Group Case Activities (Group Case Assignments)

Chapter 5: Competitive Rivalry and Competitive Dynamics

• Supplemental Cases (Readings)

ADDITIONAL INFORMATION FOR SELECT MINDTAP RESOURCES:

WHAT WOULD YOU DO? COMPETITION AMONG CAR

COMPANIES

This exercise introduces students to strategic decisions as they are made in the real world.

VIDEO QUIZ: COMPETITION AMONG CAR COMPANIES

The media quiz offers additional opportunities for students to apply the concepts in the

chapter to a real-world scenario as it is described in news reports.

Title: Competition Among Car Companies

RT: 2:58

Topic Key: Competitive behavior, Competitive dynamics, Multimarket competition,

Competitive response, Strategic actions

Chapter 5: Competitive Rivalry and Competitive Dynamics

hopefully will have a “wow” factor with its customers and produce cars in an efficient

manner to save costs in fast-cycle market. It’s also very important for GM to understand

the different markets they are in in terms of what their customers want and the competitive

rivalry that exists.

Chapter 5: Competitive Rivalry and Competitive Dynamics

Suggested Discussion Questions and Answers

• How can GM understand its competitive environment?

Text: A competitive analysis is the first step the firm must take to be able to

GUIDED CASE: ALDI

This auto-graded activity asks students to read the short end-of-chapter case on Aldi, and

answer questions in the areas of Analysis, Strategy, and Implementation &

Performance.

Founded in 1913 in Germany, Aldi initially expanded into other European markets and

has since grown into a global grocery store chain operating in 20 countries, including the

United States. Aldi offers low-cost products, largely by selling its own brand-label

Chapter 5: Competitive Rivalry and Competitive Dynamics

GROUP PROJECT: COMPETITIVE ADVANTAGE: FIRST

MOVERS COMING IN SECOND

The purpose of this exercise is to take a look at competition in the marketplace and

whether success is based on being a first mover. In this group project, students will have

the opportunity to practice valuable management skills including critical thinking,

research comparisons, presentations, and discussing competitive actions.

Students will be asked to:

• Select a consumer or manufacturing industry.

This exercise provides students an opportunity to identify competitive behaviors and the

benefits of companies who are first movers. Instructors should encourage students to