Keep in mind that competition can come in multiple forms and be both strategic and tactical. Tactical actions (small or temporary moves like price promotions or coupons) tend to draw competitive responses quicker than than strategic actions (large moves that change a company’s business model or mix of businesses). Market leaders are more likely to attract responses to their competitive actions than are smaller firms.
Example 6.8 – Multi-market Competition
Two of the most well known multinational Western coffee firms, Starbuck and Costa Coffee are facing intense competition from local trendy cafes in Shanghai, China. Beijing-based Luckin Coffee is undergoing on the of the fastest retail expansion in history. To leverage its international reputation and 20-year presence in China, Starbucks is responding with all-day dining featuring fresh Italian food, Starbucks Reserve Bakery Cafe. But Starbucks is being pressured by Luckin low prices. Starbucks is attempting to innovate its product and service instead of getting into an unwanted and intense price war.
Source: Forbes, New Cafes Won’t Solve Starbucks China Problem, Bunga Azalea Putri, 2019Wi
The aggressiveness of a rivalry is commonly a result of overlaps in interests between multiple firms and their resource and market similarity. Resource similarity occurs when one firm’s tangible and intangible resources look like a competitor’s in both types and amounts. Market commonality happens when a firm and its competitor operate in the same market. For example, in the financial industry, firms compete for access to capital (resource similarity) and in the food industry, firms compete over access to customer groups (market similarity). The more important these resources or markets are to success in the industry, the more likely one firm is to respond when another acts. The more important the resource or market to either firm, the more aggressive the response.
Companies expose themselves to, or mitigate losses from, overlapping interests using multi-market competition – that is, through the number of product or geographic markets in which they compete head-to-head. Greater multi-market contact means a firm is less likely to initiate an attack but is more likely to respond when attacked. A greater similarity of resources means a greater similarity in strengths and weaknesses and therefore, in business strategies.