Factors Affecting Competitive Rivalry
Understanding industry rivalry
This framework outlines the factors that affect competitive rivalry in an industry, including switching costs, capacity augmented in large increments, diverse competitors, high strategic stakes, and high exit barriers. Understanding these factors can help businesses develop strategies to gain a competitive advantage.
- Switching costs can affect the intensity of competitive rivalry
- Capacity augmented in large increments can lead to overcapacity and price cutting
- Diverse competitors can make it difficult for companies to predict their competitors' actions
- Analyze Switching CostsDetermine the switching costs for customers in the industry and how they affect the intensity of competitive rivalry.Pro tipConsider the costs of switching to a new supplier or productWarningHigh switching costs can make it difficult for new entrants to gain market share
- Assess Capacity Augmented in Large IncrementsDetermine if capacity is added in large increments in the industry and how this affects the supply/demand balance.Pro tipConsider the impact of overcapacity on prices and profitabilityWarningOvercapacity can lead to price cutting and reduced profitability
- Evaluate Diverse CompetitorsAssess the diversity of competitors in the industry and how this affects the intensity of competitive rivalry.Pro tipConsider the different strategies and goals of competitorsWarningDiverse competitors can make it difficult to predict competitors' actions
The recreational vehicle industry experienced a decline in growth rate as it matured, leading to intensified rivalry and reduced profitability.
Michael E. Porter developed this framework as part of his work on competitive strategy. He recognized that industry rivalry is a key factor in determining a company's profitability and developed this framework to help businesses understand and analyze the factors that affect rivalry in their industry.