- Exit Barriers-is there a high cost to exit the market and go into a different one?
- Industry Concentration-This is the percent of market share held by the four largest firms in that industry based on N.A.I.C.S. codes. Click here to find the latest concentrations based on the Economic Census. Statistics for the largest 8,25,and 50 firms are also available.
- Fixed costs/Value Added
- Industry Growth
- Intermittent overcapacity
- Product differences
- Switching costs
- Brand Identity
- Diversity of rivals
- Corporate stakes-how heavily is the company invested in particular products/services
Sources which may help with information about rivalry and general industry background are as follows:
Rivalry refers to the degree to which firms respond to competitive moves of the other firms in the industry. Rivalry among existing firms may manifest itself in a number of ways- price competition, new products, increased levels of customer service, warranties and guarantees, advertising, better networks of wholesale distributors, and so on.
The degree of rivalry in and industry is a function of a number of interacting structural features:
- Rivalry tends to intensify as the number of competitors increases and as they firms become more equal in size and capability.
- Market rivalry is usually stronger when demand for the product is growing slowly.
- Competition is more intense when rival firms are tempted to use price cuts or other marketing tactics to boost unit volume.
- Rivalry is stronger when the costs incurred by customers to switch their purchases from one brand to another are low.
- Market rivalry increases in proportion to the size of the payoff from a successful strategic move.
- Market rivalry tends to be more vigorous when it costs more to get out of a business than to stay in and compete.
- Rivalry becomes more volatile and unpredictable the more diverse competitors are in terms of their strategies, their personalities, their corporate priorities, their resources, and their countries of origin.
- Rivalry increases when strong companies outside the industry acquire weak firms in the industry and lunch aggressive, well-funded moves to transform their newly-acquired firms into major market contenders.
Two principles of competitive rivalry are particularly important: (1) a powerful competitive strategy used by one company intensifies competitive pressures on the other companies, and (2) the manner in which rivals employ various competitive weapons to try to outmanoeuvre one another shapes "the rules of competition" in the industry and determines the requirements for competitive success.
- Career development
- Competitive Rivalry: What Is It and Why Is It Important?
By Indeed Editorial Team
Published March 15, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
There are many factors, both internal and external, that can impact a company's success in the marketplace. Competitive rivalry is an external force that has some advantages and some disadvantages for organizations in that specific field. It's useful to understand what competitive rivalry is and how it can affect your business success. In this article, we explain what competitive rivalry is, describe the different forms of competitive rivalry, list the factors that determine competitive rivalry, highlight the pros and cons of competitive rivalry and detail how to use competitive rivalry to your advantage with an example.
Related: Porter's Five Forces: Factors and Examples
What is competitive rivalry?
Competitive rivalry is the measurement or intensity of competition between companies in the same field or industry. Some competitive rivalry is often healthy for all businesses involved, as it encourages product and service innovation and discourages unnecessary price increases for customers. However, excessive competitive rivalry can pose challenges to some companies.
Related: How To Create a Focus Strategy
Forms of industry rivalry
Competitive rivalry, or industry rivalry, can take a variety of forms, depending on the resources available to the businesses involved in the competition. A few of the most common forms of industry rivalry include:
Price: One of the easiest ways to increase your company's perceived value in a competitive market is through lowering your prices to undercut competitors.
Advertising: Increased or innovative advertising can draw more customers to your business and away from competitors.
Product or service differentiation: Innovating your product or service to be better than the competition can also maximize your market share.
Related: A Guide To Using Porter's Generic Strategies
What factors determine competitive rivalry?
Competitive rivalries exist for a number of reasons. These factors can influence the existence and intensity of a competitive rivalry:
Market saturation
Markets that have a substantial number of businesses offering similar products or services have a higher likelihood of encountering competitive rivalries than those with fewer direct competitors. Companies facing this type of competitive rivalry often feel compelled to spend time and money demonstrating their uniqueness to consumers.
Slow market growth
In a slowly growing market, there's increased competition over the few available consumers, regardless of market saturation. Often, in this situation, the only way to gain new customers is to find ways to get consumers to switch from a competitor to you.
High overhead
Some industries have higher overhead, or fixed costs, than others. In markets where overhead is costly, companies must set higher price points to accommodate their fixed costs, leading to increases in other methods for gaining market share aside from pricing.
Lack of differentiation
Some industries have little product or service differentiation from one company to the next. A lack of differentiation can increase the chances a consumer will select a product based purely on price or availability rather than brand loyalty, leading to competitive rivalry.
Low switching costs
There are industries and fields in which switching from one product or company to another takes very little time or money. In these industries, competitive rivalry is often high because consumers have little reason to remain loyal to one company over another.
Supply and demand
Changes to consumer demand or supply availability can impact an industry's overall competitive rivalry. Often, in cases of supply and demand shift, the increase in competitive rivalry is short-lived.
Business diversity
Some industries have multiple options for marketing, pricing and selling their products of services. Diversity in any of these areas can increase competitive rivalry, since some strategies might be more effective than others when increasing market share.
Strategic planning
Strategic planning, like focusing on long-term growth and development over short-term profit increases, can affect competitive rivalry by shifting the focus of the market.
Exit barriers
It's more difficult to leave some industries than others, resulting in businesses taking drastic measures to remain profitable rather than to find a way to exit the market, leading to an increase in competitive rivalry.
Related: What Is a Competitive Analysis?
Pros and cons of competitive rivalry
Competitive rivalry can offer advantages and disadvantages to the companies involved. Consider a few of the primary benefits and obstacles competitive rivalry can present:
Pros of competitive rivalry
Competitive rivalries can motivate your company to make positive changes and improve your profitability. Consider a few of the opportunities competitive rivalry presents:
Improved customer service: Improving your business's customer service offerings is an easy and practical way to increase customer loyalty.
Higher innovation: You'll find new ways to innovate and demonstrate your creativity when faced with a saturated marketplace.
Regular self-assessment: In order to stay relevant to customers and continue improving market share, you'll likely spend more time identifying your strengths and weaknesses.
Increased customer focus: You'll likely improve your customer outreach and focus to gain more customers than your competitors.
Growth in the market: Competition encourages everyone in the industry to find alternative ways to do business and grow the field overall.
Identifying industry solutions: The more competitors there are in the market, the more group negotiating and regulating power the whole industry has.
Cons of competitive rivalry
Sometimes, competitive rivalry can present challenges to the companies involved. Be aware of these common disadvantages to prepare for and neutralize them before they negatively impact your business operations:
Increased costs: When the market is saturated with companies selling similar products or services, the need to spend money on advertising and differentiation often increases.
Fewer customers: The more options a customer has, the fewer individuals each company has access to.
Development pressure: Since a saturated, highly competitive marketplace has fewer customers to cater to, you may need to find ways to expand your operation and engage a new demographic to stay profitable.
Decreased market share: Manufacturing too many products in a saturated market can lead to forced discounts and other profit loss measures to keep commodities from stagnating on a shelf or in a warehouse.
Tips for optimizing competitive rivalry
You can use competitive rivalry as a catalyst for positive business changes. Consider these tips to maximize the impact of competitive rivalry in your sector:
Know the competition: Regularly review your competitors' products, services, marketing and pricing, particularly in instances where there's little product or service differentiation. Knowing what others in the industry are doing can help you create a unique selling proposition for customers.
Perform a SWOT analysis: Use a SWOT, or strengths, weaknesses, opportunities and threats analysis to see how you can differentiate your company from others in the industry.
Find your value proposition: Identify the unique elements of your business that you can highlight for customers.
Consider development options: Look for growth and development opportunities to increase your market share and separate your organization from others in the sector.
Example of competitive rivalry
Consider this example of using competitive rivalry to your company's advantage to better your understanding of the overall process:
Anna's Books and Books Bonanza are competing bookstores in a small town. Both companies are similar sizes and offer a similar range of products. Since there's little differentiation between their products, both bookstores are suffering from a decrease in consumer purchases and high competitive rivalry. The two bookstores decide to take different approaches to manage the competitive rivalry they're facing and increase their profitability.
Anna's Books decides to add additional programming to their store to increase in-person visits and engage with customers directly. They start an adult book club and a children's story time and see a 10% increase in customer visits to the store and a 5% increase in overall sales.
Books Bonanza decides to enhance their online presence and do more business online and less in person. They're able to increase their market share by 8% and find they're competing less with Anna's Books.