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Business Fundamentals was developed by the Global Text Project, which is working to create open-content electronictextbooks that are freely available on the website http://globaltext.terry.uga.edu. Distribution is also possible viapaper, CD, DVD, and via this collaboration, through Connexions. The goal is to make textbooks available to the manywho cannot afford them. For more information on getting involved with the Global Text Project or Connexions email us atdrexel@uga.edu and dcwill@cnx.org.
Editor: James W Bronson (The University of Wisconsin, USA)
Contributors: Kellie Goldfien, Ryan Wolford
Reviewer: William A Drago, (University of Wisconsin, USA)
Competing firms offer functionally interchangeable products to the same buyers. Competition occurs when competing firms attempt to attract buyers by offering products with greater perceived benefit. Common benefits include price, service, reputation, and image, but may include virtually anything else associated with a product that the buyer values. A buyer’s perceptions of what constitutes a benefit may vary widely based on the nature of the product. Since the actions taken by one competitor to attract buyers are likely to affect the performance of other competitors, competing firms are said to be interdependent .
Coke and Pepsi are interdependent. An attempt by Pepsi to attract buyers (increase sales) through an advertising campaign will decrease the sales of Coke. Coke may counter this advertising campaign with its own advertising or it may elect to take another competitive action such as a temporary reduction in the price of Coke. How Coke chooses to react to Pepsi will be based on an analysis of how the firms have acted in past situations. The industry’s competitive dynamics is the ongoing series of competitive actions and competitive responses that take place as Coke and Pepsi compete for customers.
Competitive intelligence is the systematic collection and analysis of publicly available information about competitors. Intelligence about competitors is key to understanding the actions they are currently taking to attract buyers. Competitive intelligence may also allow the firm to predict a competitor’s future actions and take measures to preempt or minimize the impact of those actions. The objective of a firm’s competitive intelligence is to understand its competitors.
It should be easy to envisage Coke and Pepsi as interdependent competing firms. Can you come up with five more examples of interdependent competing firms, e.g. Honda and Toyota, Boeing and Airbus,...
Entrepreneurs commonly underestimate the impact of competition. Entrepreneurs who do underestimate the impact of competition are failing to consider the fact that potential buyers are currently managing without the entrepreneur’s product. There are three arguments for why potential buyers are managing without the entrepreneur’s product or service:
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