158 Part 2: Strategic Actions: Strategy Formulation
IBM Service Software.PNG
The IBM brand has had a very strong positive reputation for many years.5-6b Actor’s Reputation
In the context of competitive rivalry, an actor is the firm taking an action or a response,
while reputation is “the positive or negative attribute ascribed by one rival to another
based on past competitive behavior.”^82 A positive reputation may be a source of above-
average returns, especially for consumer goods producers.^83 Thus, a positive corporate
reputation is of strategic value^84 and affects competitive rivalry. To predict the likelihood
of a competitor’s response to a current or planned action, firms evaluate the responses
that the competitor has taken previously when attacked—past behavior is assumed to be
a predictor of future behavior.
Competitors are more likely to respond to strategic or tactical actions when they are
taken by a market leader.^85 In particular, evidence suggests that commonly successful
actions, especially strategic actions, will be quickly imitated. For example, although a
second mover, IBM committed significant resources to enter the information service
market. Competitors such as Hewlett-Packard (HP), Dell Inc., and others responded with
strategic actions to enter this market as well.^86 IBM has invested heavily to build its capa-
bilities in service related software as well. And, the investments appear to be paying off
as IBM recently reported that a study of 800 firms using its Software-as-a-Service (SaaS)
had achieved a competitive advantage in their markets.^87
In contrast to a firm with a strong reputation, competitors are less likely to respond
to actions taken by a company with a reputation for risky, complex, and unpredict-
able competitive behavior. For example, the firm with a reputation as a price predator
(an actor that frequently reduces prices to gain or maintain market share) generates
few responses to its pricing tactical actions because price predators, which typically
increase prices once their market share objective is reached, lack credibility with their
competitors.^885-6c Market Dependence
Market dependence denotes the extent to which a firm’s revenues or profits are derived
from a particular market.^89 In general, competitors with high market dependence are
likely to respond strongly to attacks threatening their market position.^90 Interestingly, the
threatened firm in these instances may not always respond quickly, even though an effec-
tive response to an attack on the firm’s position in a critical market is important.
At an annual compound growth rate of 11 percent, recent predictions are that
e-commerce sales will grow more than any other segment of the retail industry through
at least 2017. Obviously, this growth rate is attractive to firms of all kinds including, as it
turns out, Walmart. Established in 2000 as part of the world’s largest firm by sales volume
(with revenue of roughly $469 billion in 2012), Walmart.com is the giant retailer’s attempt
to become extremely successful in the e-commerce space. Today, over 1 million products
are available through Walmart.com, with additional ones being regularly added to the site.
Of course, competing in e-commerce pits Walmart.com squarely in competition with
Amazon.com the largest online store on the planet.^91