Competitors in a common market become rivals as they strive to gain more customers than their compatriots. Rivalry among existing competitors has a serious impact on the market as it affects even the prices of goods by lowering them.
A more severe competition will lead to higher costs of production which means the profits go down. In this article I am going to show you the how rivalry between competitors affects the market including the customers and the industries themselves.
Effects of Rivalry Amongst Existing Competitors
Rivalry between the industry competitors affects the market both negatively and positively Below are various ways that the competition upsets the market.
- Decreased prices
The most obvious thing that will happen in a competing industry is that the prices will go up. This is because the competitors will lower their prices in a bid to win over customers from their rivals.
- Improved innovation
Improved innovation means the employment of a new or highly improved production or delivery method. This means changes in software, procedures and equipment.
- More advertising
The competitors opt to advertising so as to attract new customers as well as draw more awareness to the existing ones.
- increase in service/product improvements
The competitors try to improve their products so a s to retain their customers as well as win over new ones. They do this by offering better services, increasing value, enhancing safety and satisfaction and reducing cost. This means the customers get better value for their money but it also means increased cost of production for the competitors.
Factors that dictate extent of rivalry among competitors
- Number of competitors
The more the number of competitors that an industry has the higher the competition will be. Similarly, the smaller the market for the goods the higher the rivals must compete. A highly saturated market means the competitors must compete fiercely for the existing customers. As a result the suppliers work to ensure reliability while the competitors strive to get each other’s customers.
- Diversity of competitors
If the existing competitors have originality, a variety of strategies, behaviors and relations to their main branches this means their goals and strategies differ from the usual companies in that industry. This means different companies bring differing approaches of doing business and the disruption of existing conditions.
- Industry concentration
The concentration level in the industry is a major factor that determines how tough the competition in an industry is. The level of competition is going to be more intense if the competitors are many and with equal market shares. In the contrary if there is a leading competitor who is more than 50% bigger than his closest rival, the rivalry will be minimal.
- Brand loyalty
Brand loyalty means you have customers who consistently buy only your products. If you have loyal customers to your product this means it will be easy to have them remain with you even when a more aggressive competitor enters the market. To maintain customer loyalty its important to meet and even exceed the expectations of your customers.
- Industry growth
Industry growth plays an important role in determining extent of rivalry. The intensity of rivalry will be high if the industry growth is slow and customers can shift to the competitors products easily because they are cheaper. The intensity of rivalry will be low if the industry growth is rapid.
- Quality differences
If the quality of goods is the same there will be a stiff competition to win over the competitor’s customers and increase market share. On the other hand if quality is similar competition is low.
- Barriers to exit
The ease with which a company can leave the industry affects the level of rivalry among existing competitors. The higher and stiff the barriers the more likely companies planning to leave are more likely to stick around. When a company finds that it’s more expensive to leave than stay, obviously they choose the latter. The company will therefore look to optimize their gain in the current industry by investing and committing there.
- Switching costs
Switching costs always occur when customers change their suppliers. If the switching costs are zero or negligible this make the industry more competitive. Mostly this results from the industries being undifferentiated and the products give same, benefits and features.
- The nature of products
The type of product in the competing industry plays a critical role I the level of rivalry. Non-perishable goods will withstand the duration of the competition of the rivalry because they don’t go bad. Perishable goods on the other hand it will not go for long and will totally lose its value. This will impact that industry and force them to sell their products at a low price before they expire or outdated.
10.Industry life cycle
The life cycle of an industry is made up of different stages that the industry undergoes as it advances from a new industry to a long-standing one. Industries compete to get more customers and this competition changes in different stages of the company’s life cycle. It’s important to know the industry’s life cycle so as to come out on top of the competition.
The final word
Rivalry among competitors means a lot of things are going to change. This will affect all the market dynamics including the customers and other industry players. It is a very crucial part of any industry that determines who remains and who is kicked out of the market by the forces of competition.
To stay safe its important for companies to be aware of the industry’s life cycle,their loyal customers, the switching costs,nature of products they deal with,among other things. As we have seen above these factors determine the next course of action for the company.