In order to evaluate the attractiveness and profitability of an industry, a fifth force we need to look at is the rivalry among existing competitors. It is related to the intensity with which companies compete and on the basis on which they compete. Let’s consider Porter’s five forces model, well-explained in his article ‘The five competitive forces that shape strategy’ published by Harvard Business Review in 2008. He says that the intensity of rivalry is greater when:

• the competitors are numerous or similar in size and power
• the industry growth is slow and fights for market shares increase
• exit barriers are high. They arise due to very specialised assets or mangement’s dedication to a specific area of business and companies do not leave the sector even if their earnings are low
• industry players are committed to the business and have leadership ambitions

Price competition is likely to take place if:

• the products or the services of the industry players are very similar and there are low switching costs for buyers
• the products are perishable. This brings about the tendency to cut prices and sell a product while it is still valuable. Food is not the only perishable product, also models of computers are perishable, because they soon become out of date.

Competition based on product features, support services, delivery time, brand image is less likely to erode profitability because it tends to improve customer value and can support higher prices.

Moreover, rivalry may become a zero-sum competition (one company wins, the other loses with the consequent profitability erosion) when industry players compete on the same dimensions and target the same customer segment. On the other side, rivalry may become a non-zero-sum competition, and as a result, increase the industry’s profitability, when each company aims to meet the needs of different customer segments, with different mixes of price, products, services, features or brand identities. Such competition even leads to an industry expansion as the needs of more customer segments are better served.

All in all, strategists should take actions so as to transform competition in a more positive driving force.