Competitive Rivalry For most industries, this is the major determinant of internal market competition. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc. Examples of elements that determine Competitive Rivalry: The structure of the competition – e.g. rivalry is more Structure of intense where there are many small or L / H competition equally sized competitors; rivalry is less when an industry has a clear market leader. Industries with high fixed costs encourage competitors to fill unused capacity by cutting prices. The paper, steel Industry cost L / H and car industries are examples of industries where structure prices have been cut to achieve basic sales volumes – thus increasing rivalry. If a market is growing slowly it causes firms to fight for market share. It will be at the expense of another Market growth L / H competitor. In a growing market, firms are able to improve revenues because of the expanding market. If there is not much differentiation between players and Product their products/ services, then competition is based on L / H differentiation the best price. This reduces customer loyalty and increases competition. When it is difficult or expensive to exit from an industry Exit barriers L / H (e.g. cost of closing a plant), there is likely to be excess production capacity and therefore, increased rivalry. Low switching costs increases rivalry. When a customer Switching cost L / H can freely switch from one product to another there is a greater struggle to capture customers. Strategic stakes are high when a firm is losing market Strategic L / H position or has the potential for great gains. This objectives intensifies rivalry. High storage cost or highly perishable products cause a producer to sell goods as soon as possible. If other Storage cost L / H producers are trying to unload at the same time, competition for customers intensifies.
Competitive Rivalry For most industries, this is the major determinant of internal market competition. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc. Examples of elements that determine Competitive Rivalry: Structure of competition The structure of the competition – e.g. rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader. L / H Industry cost structure Industries with high fixed costs encourage competitors to fill unused capacity by cutting prices. The paper, steel and car industries are examples of industries where prices have been cut to achieve basic sales volumes – thus increasing rivalry. L / H Market growth If a market is growing slowly it causes firms to fight for market share. It will be at the expense of another competitor. In a growing market, firms are able to improve revenues because of the expanding market. L / H Product differentiation If there is not much differentiation between players and their products/ services, then competition is based on the best price. This reduces customer loyalty and increases competition. L / H Exit barriers When it is difficult or expensive to exit from an industry (e.g. cost of closing a plant), there is likely to be excess production capacity and therefore, increased rivalry. L / H Switching cost Low switching costs increases rivalry. When a customer can freely switch from one product to another there is a greater struggle to capture customers. L / H Strategic objectives Strategic stakes are high when a firm is losing market position or has the potential for great gains. This intensifies rivalry. L / H Storage cost High storage cost or highly perishable products cause a producer to sell goods as soon as possible. If other producers are trying to unload at the same time, competition for customers intensifies. L / H