FREE online courses on Competitive Strategies - A Model of Competitive Rivalry - Competitive Response

 

Once a competitive action has been taken, the likelihood and nature of the competitive response generally determine its success.  A competitive response is a move that is taken to counter the effects of a competitor's action.  Thus, companies considering making a competitive move should recognise the potential that competitors will respond.

 

The probability of a competitor's response to a competitive action is based on four factors:

• the type of action
• the reputation of the competitor taking the action
• the competitor's dependence on the market
• competitor resource availability

 

Remember, competitive actions are significant competitive moves taken by a company that are designed to gain a competitive advantage in a market with the type of competitive action taken based on the company's strategy. Competitive actions can be classified based on the scope or breadth and significance of the action. Strategic actions are designed to help implement a company's business-level strategy and represent significant commitments of specific and distinctive organisational resources and are difficult to implement and to reverse. Tactical actions are taken to fine-tune a strategy. They involve fewer and more general organisational resources and are relatively easy to implement and reverse, if necessary.

 

The likelihood of a competitive response to an action depends on the type of action taken--strategic or tactical--and the potential effect on competitors.  Because strategic actions require the use or dedication of specific organisational resources, are more difficult to implement successfully, are more time consuming, and are difficult (and often costly) to reverse, it is more likely that tactical actions will be implemented and responded to more often.  Because tactical actions require fewer organisational resources and are relatively easy to implement and reverse, their effects on the competitive situation are more immediately felt. Thus, rapid competitive responses to tactical actions are highly likely.

 

A positive initiator reputation will likely increase the probability of a competitive response while an uncertain or negative reputation will decrease the likelihood of a competitive response. Actions taken by market leaders are likely to energise a larger number of rapid responses (and imitation) by competitors than are actions initiated by small companies in the industry.  For example, competitive actions taken by Coca-Cola are almost certain to incite a response from Pepsi Co.

 

Actions initiated by companies with a previous history of success also will be more likely to result in quick reactions and imitation. Actions taken by companies with reputations for risk-taking and for initiating complex and unpredictable actions are less likely to be responded to. Actions taken by price predators (companies who cut prices to capture market share and then raise prices) are seen as having a negative effect on competitors and their actions receive only minimal response and imitation.

 

Companies that are highly concentrated in--or dependent on--an industry (or market) in which a competitive action has been taken are more likely to respond than are companies who do business in multiple industries and markets. This implies that single- and dominant-business companies (classifications that will be described fully later) will be more likely to respond to competitive actions initiated in their primary industry than would a diversified company (a company that does business in multiple industries).  If the action has a major (negative) effect on these market- or industry-dependent companies, a competitive response is likely regardless of whether the action taken was strategic or tactical.

 

Because responding to competitive actions requires organisational resources, small companies--or companies with few available resources--will be more likely to respond to tactical than to strategic actions because responses to tactical actions require fewer organisational resources and are easier to implement.