Professional Documents
Culture Documents
Hypercompetitive Rivalries
Richard DAveni and Robert Gunther
Complexity of Analysis
ValueNet Phase Focus on all the players relevant to your operations PARTS framework Hypercompetition Phase Focus on the competitive interactions w.r.t. the four competitive arenas C-Q/T-K/S/D framework The PLC Phase
Focus on the firm and its strategies at different stages of the PLC SWOT framework Number of Players
Traditional View
Time Firm has already moved to advantage 2 Profits from a series of actions Exploitation Counterattack
Hypercompetition
Time
Launch
DEC
DEC in minicomputers. The company posted a 31% average growth rate from 1977 to 1982 by focusing on the minicomputer. The company clung so tenaciously to its advantage in minicomputer technology that it failed to develop a strong position in the emerging markets for minicomputers and PCs. As CEO Ken Olsen commented in 1984 (Businessweek), We had 6 PCs in-house that we could have launched in the late 70s. But we were selling so many (VAX minis), it would have been immoral to chase a new market.
Hypercompetition
Four arenas of competition Cost & Quality (C-Q) Timing and know-how (T-K) Strongholds (S) Deep pockets (D)
Price / Ounce
Pepsi
Coke
Price / Ounce
Coke Pepsi
Perceived Quality
Perceived Quality
x x
Pepsi keeps price advantage through 60s and 70s, when Pepsi charged its bottlers 20% less for its concentrate With rising ingredient costs, Pepsi could no longer offer twice as much for the same price. So it raised price to Cokes level giving it a war chest to fuel an aggressive ad campaign Battle shifted from Price to Quality, with Pepsi targeting the youth What followed was the Pepsi Challenge & Real Thing Coke ads
Price / Ounce
Price / Ounce
Pepsi
Coke
First move: Pepsi Challenge 2nd move: Cokes Ad war Perceived Quality
Perceived Quality
Price / Ounce
Perceived quality caught up. Deeper pocketed and lower cost Coke initiated a price war in selective markets where Pepsi was weak in the 70s. Pepsi responded with its discounts and by the end of the 80s, 50% of food store sales were on discount Other companies moved into the lower left quadrant of the market. But the two major players forced price down to ultimate value. To break price spiral, Coke launched New Coke to keep Coke loyals and induce switching among Pepsi buyers. Rejected by market. Attempts to move to next arena via niches in caffeine and sugar substitutes Coke & Pepsi Price NewCoke Classic Coke Spiral & Pepsi Generics Actual RC Cola NewCoke Intended
Price / Ounce
Perceived Quality
Price
#5 Luvs (P&G)
#4 Huggies (Kimberly-Clark)
#2 Pampers (P&G)
Price E5 D E4 E3 E2 D E1 V1 V2 V3
N
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alu V
t ex
n Li e lu a
at m lti U
e
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Va e
Perceived Quality
Perceived Quality
Firm builds a Tech. Resource Base to create advantage Then moves into a new market first: Pioneer Followers imitate products & overcome switching costs and brand loyalties Pioneer throws up impediments to imitation Followers overcome impediments and replicate pioneers resource base First mover uses a Transformation Strategy & abandons product design/ technology based approach Builds resources to match followers manufacturing skills Price War
First mover moves downstream into higher value added products First mover uses a Leapfrog Strategy to a new resource base
Stripping down: Niche airlines Flanking products Reconceptualized products: Mobike from inexpensive transport to vehicle for
fun and recreation to a status symbol
$ / Unit
Price Cost
$ / Unit
Introductory Price Umbrella Followers enter Cost Price competitive Market Time
Time
Sony entered the software side of the entertainment business with Columbia Pictures - but imitated by Matsushita Intel and motherboards Problem is that it ties up resources that could fruitfully be committed to building the companys core businesses
Management Challenges
Do you base your strongholds on geographic areas (Folgers) or product markets (FedEx)? How do competitors define strongholds? Where are your strongholds vulnerable to attack? What barriers do you use to protect your strongholds? What barriers are used by your competitors? How can you respond to an attack from outside? How will you make the move into another players stronghold? What competitive response do you anticipate? Who and what are setting the pace of escalation down the strongholds ladder in your industry? Why?
Build entry barrier around market A to exclude competition Circumvent barriers and attack niche in market B Entrant breaches barriers or triggers price war in B
Build entry barrier around market B to exclude competition Short Run: Withdraw from niche or fail to respond Delayed Response: Barriers to contain entrant to a segment of B Incumbents stronghold in B weakens as it grows more competitive
Entrant responds in market A or in market B One firm builds new stronghold Other firm divests Standoff until one party gains the upper hand in market A or B If one firm dominates
Long Run:Incumbent attacks entrants market A to punish Both strongholds erode or merge into one STRONGmarket HOLDS ARENA Price War
S ill k
S e ia e se g p c liz d llin
H n lin re u to a d g g la ry re u m n q ire e ts
Deep pocket develops Launches attack to drive out small firms Antitrust laws invoked - work occasionally Small firms forced to outmaneuver deep pocket
New attempt to escalate resources Buyers or suppliers develop a countervailing force Hostile takeover of large firm Small firm escalates own resource base Cooperative strategy develops Avoidance strategy niching, etc.
Continued M&A in industry Large wholesalers provide economies to smaller stores Many takeover attempts from outside industry lead to high leverage Mergers
Drops prices
Industry consolidation
Small chains seek niches. Kroger also niches geographically to avoid competition
Hypercompetition
x x x x x x x x
The new 7S framework Superior stakeholder satisfaction Strategic soothsaying Speed Surprise Shifting rules of competition Signaling strategic intent Simultaneous and sequential strategic thrusts
Vision for Disruption Identifying and creating opportunities for temporary advantage via understanding Stakeholder satisfaction Strategic soothsaying to ID new ways to serve current customers better or serve those not being served
Capability for Disruption Sustaining the momentum by developing abilities for: Speed Surprise that can be applied across many actions to build a series of temporary advantages
Market Disruption
Tactics for Disruption Seizing the initiative to gain advantage by Shifting the rules Signaling Strategic thrusts with actions that shape, mould or influence the direction or nature of competitors responses
A 4 Arena Analysis
Arena Cost / Quality Key Success Factors Understanding customer needs Cost reduction Foster innovation Quick market penetration Deterrence Aggression Brute force Out-maneuvering big opponents Critical 7S S1: Stakeholder satisfaction S3: Speed S3: Speed S4: Surprise S2: Soothsaying S6: Signals S7: Strategic thrusts S7: Strategic thrusts S5: Shifting rules
Know-how / Timing