The likelihood that a competitor will launch an attack depends upon many factors. Discuss threat analysis and how it is used.

Question

What will be an ideal response?

Answer 1

Prior to observing a competitive action, companies may need to become aware of potential competitive threats. That is, companies need to have a keen sense of who their closest competitors are and the kinds of competitive actions they might be planning. This may require some environmental scanning and monitoring. Awareness of the threats posed by industry rivals allows a firm to understand what type of competitive response, if any, may be necessary. Being aware of competitors and cognizant of whatever threats they might pose is the first step in assessing the level of competitive threat. Once a new competitive action becomes apparent, companies must determine how threatening it is to their business. Competitive dynamics are likely to be most intense among companies that are competing for the same customers or that have highly similar sets of resources. Two factors are used to assess whether or not companies are close competitors: (1) market commonality (whether or not competitors are vying for the same customers and how many markets they share in common) and (2) resource similarity (the degree to which rivals draw on the same types of resources to compete).