Strategy Dynamics Briefing 49: The 3 basic mechanisms of competitive rivalry

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Briefings to this point have explained how organizations must build and retain resources over time if they are to deliver continually improving earnings or other performance objectives. But there are often competitors who are just as determined. This view of rivalry makes competition relevant to nonprofit organizations as well as to businesses — charities must win donors, just as airlines must win passengers.

All competitive situations can be captured by just three dynamic structures, each applying not only to customers, but also to other scarce resources that may be fought for, such as staff and sources of supply.

  1. racing to develop potential resources; e.g. winning first-time buyers, or hiring newly qualified staff
  2. struggling to steal resources from competitors and to prevent them stealing ours; e.g. keeping customers or staff from switching
  3. fighting for share of activity from nonexclusive customers and other resources; e.g. consumer goods firms winning the largest share of retailers’ shelf space, or voluntary groups wanting more share of donors’ total giving.

These three mechanisms often operate together. In fast-moving consumer goods, competitors rush to win new consumers when introducing a new type of product, and strive to have competitors’ products removed from stores and replaced with their own. Since neither consumers nor stores always buy exclusively a single product, they then must try to capture more share of purchases in a product category than their rivals.

These thee types of rivalry all involve competitors interacting in some way — what one wins, another loses or fails to win. But on some issues competition involves no interaction — we might term these “type-zero” cases of rivalry. Microsoft’s success in developing a new version of the xBox games console does not prevent or slow Nintendo’s or Sony’s progress in developing their own new machines. One pharmaceutical company’s success in developing a drug for a particular disease does not hinder the progress of a competitor seeking their own product. There may possibly be competition for some related resources, such as the skilled people needed to develop the products, but the product development race itself is not contestable.

In some special situations, firms may also launch wrecking attacks with no particular expectation of gaining resources themselves – for example, to weaken the competitor’s ability to fight in another market – but hese special circumstances are rare.

The three mechanisms are most clearly evident for consumable products and services, whether in business-to-consumer (B2C) or business-to-business (B2B) cases (see Table).

Business-to-consumer (B2C) Business-to-business (B2B)
Example Soft drink Business banking
Type-1 rivalry Winning kids’ first-time choice Winning a new business’s first requirement for banking
Type-2 rivalry Persuading consumers to switch brand Capturing business customers from a rival bank
Type-3 rivalry Winning more share of choice by disloyal consumers Winning more share of banking needs for businesses using more than one bank

The distinctions are not always so clear, though, and the competitive mechanisms need specifying carefully. For durable and semidurable products, such as running shoes or cars, each purchase occasion may operate as a one-off type-1 competition — should I buy Nike or Adidas this time? Honda or Ford? Once the purchase has been made, there is no opportunity to get customers to switch until the product is to be replaced, and no meaningful way of capturing “share” of purchases. A bank account, on the other hand, may seem to be a “durable” purchase, but banks may lose customers who switch to competitors (type-2 rivalry) or even need to fight for share of transactions, deposits or lending to customers who have accounts with more than one bank.

Services are just as likely as products to exhibit rivalry dynamics. Travellers are captured for the first time when rival airlines start operating on the same new route. They may also be persuaded to switch from always using one airline to always using a competitor, or of course may be disloyal when rival airlines compete for more share of their journeys. Business services, too, can exhibit all three mechanisms. Large organizations may take all their consultancy advice from one provider, may switch to a competing consulting firm, or may use more than one advisor.

Until next time…

 

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Strategic Management Dynamics book cover
War for talent

Competition for staff is widespread, especially where they can have a big impact on firm performance (think investment bankers!). Rivalry for staff can usually exhibit only type-1 and type-2 rivalry. Law firms and oil companies compete to hire graduating lawyers or engineers (type-1). They also try to hire experienced professionals from competitors (type-2). An extra dimension with staff, though, is that a would-be employer may be competing with quite different types of organization. Shopfloor staff for Wal-Mart might move to work with McDonalds, the local hotel, or many other possible employers. Rivalry for staff is equally important in noncommercial cases. People who like to work in caring roles could choose teaching or nursing, or they may be ideally suited to service businesses, such as airlines or restaurants.

This briefing summarises material from chapter 7 of Strategic Management Dynamics, pages 428-430.

Read more about the book on the strategy Dynamics website

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