Chapter 5: Competitive Rivalry and Competitive Dynamics 157
Quality is possible only when top-level managers support it and when its importance is
institutionalized throughout the entire organization and its value chain.^72 When quality is
institutionalized and valued by all, employees and managers alike become vigilant about
continuously finding ways to improve it.^73
Quality is a universal theme in the global economy and is a necessary but insufficient
condition for competitive success.^74 Without quality, a firm’s products lack credibility,
meaning that customers don’t think of them as viable options. Indeed, customers won’t
consider buying a product or using a service until they believe that it can satisfy at least
their base-level expectations in terms of quality dimensions that are important to them.^75
Quality affects competitive rivalry. The firm evaluating a competitor whose products
suffer from poor quality can predict declines in the competitor’s sales revenue until the
quality issues are resolved. In addition, the firm can predict that the competitor likely
won’t be aggressive in its competitive actions until the quality problems are corrected in
order to gain credibility with customers.^76 However, after the problems are corrected, that
competitor is likely to take more aggressive competitive actions.
5-6 Likelihood of Response
The success of a firm’s competitive action is affected by the likelihood that a competitor
will respond to it as well as by the type (strategic or tactical) and effectiveness of that
response. As noted earlier, a competitive response is a strategic or tactical action the firm
takes to counter the effects of a competitor’s competitive action. In general, a firm is likely
to respond to a competitor’s action when either
■■the action leads to better use of the competitor’s capabilities to develop a stronger
competitive advantage or an improvement in its market position,
■■the action damages the firm’s ability to use its core competencies to create or maintain
an advantage or
■■the firm’s market position becomes harder to defend.^77
In addition to market commonality and resource similarity, and awareness, motiva-
tion, and ability, firms evaluate three other factors—type of competitive action, actor’s
reputation, and market dependence—to predict how a competitor is likely to respond to
competitive actions (see Figure 5.2).
5-6a Type of Competitive Action
Competitive responses to strategic actions differ from responses to tactical actions. These
differences allow the firm to predict a competitor’s likely response to a competitive action
that has been launched against it. Strategic actions commonly receive strategic responses
and tactical actions receive tactical responses. In general, strategic actions elicit fewer total
competitive responses because strategic responses, such as market-based moves, involve a
significant commitment of resources and are difficult to implement and reverse.^78
Another reason that strategic actions elicit fewer responses than do tactical actions
is that the time needed to implement a strategic action and to assess its effectiveness
can delay the competitor’s response to that action.^79 In contrast, a competitor likely will
respond quickly to a tactical action, such as when an airline company almost immediately
matches a competitor’s tactical action of reducing prices in certain markets. Either stra-
tegic actions or tactical actions that target a large number of a rival’s customers are likely
to elicit strong responses.^80 In fact, if the effects of a competitor’s strategic action on the
focal firm are significant (e.g., loss of market share, loss of major resources such as critical
employees), a response is likely to be swift and strong.^81