Are You Similar to Your Rivals? (How Market and Resource Similarity Affect Business Rivalry)

Summary

This video script delves into the concept of market commonality and resource similarity when analyzing competitors. It explains how the overlap in markets and resources can dictate the level of rivalry between companies. The script uses the example of Costco and Sam's Club to illustrate similar experiences, and contrasts it with the mechanic shop scenario to demonstrate direct competition. It also introduces the idea of multi-market competition, where companies with widespread overlaps may avoid aggressive competition to prevent retaliation. The video encourages viewers to identify competitors and assess their market and resource similarities to understand potential threats and strategic responses.

Takeaways

• 😀 Companies that are similar in resources and market presence are likely to have similar strategies and strong rivalry.
• 🏪 Market commonality refers to the number of markets where two companies overlap, affecting the level of competition.
• 🔍 A single mechanic shop in a small town has 100% market overlap with another shop, making it a direct competitor.
• 🌐 A large chain with locations in multiple cities has less market overlap with a single local shop, reducing its strategic concern.
• 🤝 Multi-market competition can lead to less rivalry between companies due to the risk of retaliation.
• 🥤 Examples like Coke and Pepsi avoid direct conflict to prevent mutual losses, illustrating multi-market competition dynamics.
• 🔄 Large companies are more likely to retaliate against similar-sized competitors, increasing the risk of conflict.
• 🐄 Resource similarity considers both tangible (e.g., cows) and intangible (e.g., business relationships) assets.
• 📈 Companies with similar resources tend to have similar strengths, weaknesses, and strategies.
• 📊 A diagram can be used to assess the strength of rivalry based on market commonality and resource similarity.
• ✈️ Frontier Airlines example shows how to compare market commonality and resource similarity with different competitors like Amtrak, Eurotrain, Ryanair, and Spirit Airlines.

Q & A

What are the two most important aspects to learn about competitors when analyzing market rivalry?

The two most important aspects to learn about competitors are resource similarity and market commonality.

How does market commonality affect the rivalry between two companies?

The more markets in which two companies overlap, the higher the market commonality, and the more likely their strategies are to be similar, leading to stronger rivalry.

What is an example of high market commonality between competitors?

A mechanic shop in a small town with one other mechanic shop has a 100% market competition overlap, making it a direct competitor.

How does multi-market competition influence the rivalry between companies?

Companies with high multi-market competition tend to not attack each other as often due to the risk of retaliation, leading to a lower intensity of rivalry.

What is an example of how resource similarity affects rivalry between dairy farmers?

A large dairy farmer with 5,000 cows and a relationship with Walmart has high resource similarity with another large dairy farmer with 4,000 cows and a relationship with Kroger, leading to a stronger rivalry than with a small farmer with 30 cows.

What is the significance of resource similarity in determining the strength of rivalry?

Firms with similar resources are likely to have similar strengths and weaknesses, and thus, they are likely to use similar strategies, which can lead to a higher rivalry.

How can a company assess the strength of rivalry using market commonality and resource similarity?

A company can use a diagram with market commonality on the x-axis and resource similarity on the y-axis to place competitors and assess rivalry based on their positions on the diagram.

Why might a large discount airline like Frontier Airlines have a higher rivalry with Spirit Airlines compared to Amtrak?

Frontier Airlines has high market commonality and high resource similarity with Spirit Airlines, as they both target the same customers and have similar resources, leading to a higher rivalry.

What is the competitive threat of a company with low market commonality but high resource similarity?

A company with low market commonality but high resource similarity, like Ryanair for Frontier Airlines, may not be a direct competitor in terms of market, but the similarity in resources could lead to indirect competition and strategic considerations.

How can understanding competitors' market commonality and resource similarity help a company?

Understanding these aspects helps a company anticipate competitors' actions and formulate responses, which is crucial for strategic decision-making and managing rivalry.

What should a company do after identifying two competitors and their positions on the market commonality and resource similarity diagram?

A company should assess which competitor poses the bigger threat based on their position on the diagram and develop strategies to address the rivalry effectively.