Wednesday, June 8, 2011

A Market vs. an Industry Based Analysis of Inter-firm Rivalry

According to Porter in “What is Strategy,” consumer equity is a function the optimal configuration of activities related to operational effectiveness and business strengths. These factors, which make up the attributes of a business’s consumer value proposition, are tested by a corporation’s business rivals (Porter: The Five Competitive Forces) of within each of the marketing environments in which its product range is positioned to compete in.

In “A Fresh Look at Industry and Market Analysis: Understanding markets beyond the Five Competitive Forces Model,” Slater and Olson augment Porter’s perspective on market analysis. They introduce nuanced approach to industry analysis which makes the assertion that, Porter’s definition of a market as “products that are close substitutes,” does not adequately explain unstable dynamics competitive rivalry, nor does it sufficiently the parameters of a market. Slater and Olson suggest Porter’s model should combine the collective and interdependent effects of traditional market competitors, substitutes and the threat of new market entrants. In this way, a more realistic understanding of the impact of competitive rivalry on return on investment and business risk can be established. The basis being, a consumer based market approach to market rivalry was more effective than an industry based definition of market rivals.

A research paper by Ming-Jer Chen which was published in The Academy of Management Review (Jan. 1996), suggests that inter-firm rivalry, is not determined by the existence of other groups of firms within an industry (traditional definition of competitor), but rather, is determined by market context determining the degree to which market participants actually compete with each other.

Therefore, if market rivalry is determined by product homogeneity perceived by consumers, rather than, the blurred definition of possible product substitutes in an industry – why should branding be perceived as a static component of market competition?

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