62 Part 1: Strategic Management Inputs
As their inventories grow, producers of perishable goods often use pricing strategies
to sell products quickly.Lack of Differentiation or Low Switching Costs
When buyers find a differentiated product that satisfies their needs, they frequently pur-
chase the product loyally over time. Industries with many companies that have success-
fully differentiated their products have less rivalry, resulting in lower competition for
individual firms. Firms that develop and sustain a differentiated product that cannot be
easily imitated by competitors often earn higher returns. However, when buyers view
products as commodities (i.e., as products with few differentiated features or capabilities),
rivalry intensifies. In these instances, buyers’ purchasing decisions are based primarily on
price and, to a lesser degree, service. Personal computers are a commodity product and
the cost to switch from a computer manufactured by one firm to another is low. Thus,
the rivalry among Dell, Hewlett-Packard, Lenovo, and other computer manufacturers is
strong as these companies consistently seek to find ways to differentiate their offerings.High Strategic Stakes
Competitive rivalry is likely to be high when it is important for several of the compet-
itors to perform well in the market. Competing in diverse businesses (such as semi-
conductors, petrochemicals, fashion, medicine, and skyscraper and plant construction,
among others), Samsung is a formidable foe for Apple in the global smartphone market.
Samsung has committed a significant amount of resources to develop innovative prod-
ucts as the foundation for its efforts to try to outperform Apple in selling this particular
product. Only a few years ago, Samsung held a sizable lead in market share (33 percent to
18 percent), but in the fourth quarter of 2014, the two firms’ market share was virtually
equal. It seems that apple received a significant boost with the release of the iPhone 6.^117
However, this market is extremely important to both firms, suggesting that the smart-
phone rivalry between them (and others) will remain quite intense.
High strategic stakes can also exist in terms of geographic locations. For example, a
number of automobile manufacturers have established manufacturing facilities in China,
which has been the world’s largest car market since 2009.^118 Because of the high stakes
involved in China for General Motors and other firms (including domestic Chinese auto-
mobile manufacturers) producing luxury cars (including Audi, BMW, and Mercedes-
Benz), rivalry among them in this market is quite intense.High Exit Barriers
Sometimes companies continue competing in an industry even though the returns on
their invested capital are low or even negative. Firms making this choice likely face high
exit barriers, which include economic, strategic, and emotional factors causing them to
remain in an industry when the profitability of doing so is questionable.
Exit barriers are especially high in the airline industry. Profitability in this industry
has been very difficult to achieve in recent years partly because of the latest global finan-
cial crisis. However, profits in the airline industry increased in 2013 and 2014. Industry
consolidation and efficiency enhancements to how airline alliances integrate their activ-
ities helped reduce airline companies’ costs while improving economic conditions in a
number of countries. This resulted in a greater demand for travel. These are positive signs,
at least in the short run, for these firms given that they do indeed face very high barriers
if they were to contemplate leaving the airline travel industry.^119 Common exit barriers
that firms face include the following:
■■Specialized assets (assets with values linked to a particular business or location)
■■Fixed costs of exit (such as labor agreements)