Competitor Analysis and Foothold Moves

INTRODUCTION
The article ‘Competitor Analysis and Foothold Moves’ by Upson, Ketchen Jr. & Connelly, and Ranft renders an analysis of competitor dynamics and the shifts in the market place when competitors interact with market forces. Upson et al establish rivalry as the interaction between businesses and the market forces that drive competition. The foothold is introduced as a means to establish a “foothold” (Upson et al) in a new market. “One potentially important type of market position that has mostly escaped attention is a foothold, which we define as a small position that a firm intentionally establishes within a market in which it does not yet compete.” (Upson et al, 2012, 93)
The market interaction of a foothold as a new means of doing business or to interact with the consumer base is a response to the competitor analysis of competitive benchmarking. The competitor rivalry between firms in the market place is purported by Upson et al to be driven by the use of footholds to enter and leave new markets. “Foothold moves (attacks and withdrawals) can-have important implications for the nature of rivalry between firms.” (Upson et al, 2012, 93) The use of foothold moves may determine competitor reaction when willfully responding to a foothold strategy. The foothold allows for a reactant, which is a market competitor to create a strategy in response to a market move from a much larger market competitor operating in a parallel market likely in the same industry.

The aforementioned analysis is supported by the following past research provided by Upson et al. “Karnani and Wernfelt suggested that a “mutual foothold equilibrium” wherein each of two firms owns a small share of a market that the other dominates can reduce rivalry, because each firm “has a stick with which to discipline the other firm” (1985: 90).” (Upson et al, 2012, 93) The same logic does apply when two firms own a large share of the market. If the competitor to the foothold firm makes an attempt to aggregate a larger share of the market, the foothold firm can counter with innovating within the foothold market by adopting a new technique or methodology to the underlying functionality of the technology that is competing in that particular space, for example, server software.
The research specific to the contribution of Upson et al is to reduce the space between the knowns and unknowns known about footholds with respect to potential importance to competition” (Upson et al, 2002, 94”Upson particularly does examine “how competitor analysis influences foothold attacks and withdrawals.” (Upson et al, 2012, 94) Competitor analysis is therefore a sequential movement of activity between competitor firms that try to gain market share in either their established market or to a foothold market via retaliation. This approach to competitor analysis is interesting to the current business environment due to the focus on entrepreneurialism and on innovation as a means to business success.
The second compare and contrast article is entitled ‘Competitor Analysis and Interfirm Rivalry: Toward a Theoretical Integration’, by Chen (1996). The title ostensibly parallels the same framework as the previous study as the interfirm rivalry is likely to refer to direct competitors operating in the same sector within the same industry. The main function of competitive analysis provides an understanding that allows one to “predict the rivalry, or interactive market behavior, between firms in their quest for a competitive position in an industry (Caves, 1984; Porter 1980; Scherer & Ross, 1990).” (Chen, 1996, 100-101) Chen points to Caves et al research as the primary theoretical approach used to define the causal methodology necessary to identify competitive analysis. The rivalry is therefore considered to be predictable relative to the interactivity of market behavior as firms compete for greater market share in their industry.
Chen has chosen the Caves et al research which establishes the rivalry between firms as a means to measure the level of competition through market channel interactions. The market interactions are analyzed on the premise that rivalries will respond to each move with a more competitive move. Chen points to competitive analysis research that does not necessarily distinguish the market as either superior or inferior. The superior market will be the market with larger or the largest market share and the inferior market will be the equivalent of a foothold market or essentially a secondary/auxiliary market. The clumping of market competition will inherently view any move against a rival as relevant to competitor analysis without necessarily distinguishing the response based on the level of market share relative to the market share held by the rival.
Porter’s (1980) five force’s is used by Chen to identify the means to which competition is driven. Porter’s Five Forces, has remained most within academia and out of the perspective of industrial operations. .Chen isolates the strategic-group approach (Barney et al) as the most relevant to competitor analysis the strategic-group approach (Barney & Hoskisson, 1990; McGee & Thomas, 1986) is by far the most popular and relevant.” (Chen, 1996, 101) This use of the strategic-group approach within Chen’s theoretical framework does point to the lack of a market context that researchers apply to the study of competing firms. Competing firms directly engage each other in the market and to the level of direct competition between each competing firm. The analysis from the research into competitor analysis relative to the findings of Barney et al reveals that a lack of study between the interaction and the direct competitive responses between firms. This may have to do with the lack of identification by researchers of the market moves by competing firms in response to interacting market forces and in obtaining greater market share.
The focus inherently shifts to areas of competitor analysis that have remained neglected from study. Areas where researchers previously ignored the market context that drove business decisions relative to rivalries and competitor analysis are inherently under investigation for further clarification. “Thus far, some of the most fundamental questions in competitor analysis have remained unexplored (Gatignon, 1984; Weitz, 1985). For example, how can researchers studying competition differentiate among players in an industry to explain each player’s market behaviors?” (Chen, 1996, 101) The aforementioned question is inherently the issue with regard to research competitor analysis. Competitor analysis is inclusive of having the ability to differentiate between industry players and their reactions to competitor moves as to whether each move and subsequent move is a function of competitor rivalry.
ANALYSIS OF VIEWS
The research by Upson et al is essentially subsequent to the Chen research. Upson et al isolates the rivalry response to be within the possibility of the secondary market or the foothold. The identification of the foothold as a means to check the power of a rival firm operating in the primary market of a two-firm rivalry is ostensibly the focus of the Upson et al research which is a complement to the Chen research. The authors seemingly agree that competitor analysis is a market research based activity that seeks to distinguish the primary, secondary, and tertiary forces. These forces do enable interlink between industry competitors and further identify industry competitors as possible industry rivals. “How can a firm, before launching an attack, assess its prebattle relationship with a given rival and the resultant likelihood that this rival would retaliateHow can a firm gauge which opponent is most likely to attack its marketsHow can strategists differentiate among a set of competitors to allow the firm to allocate appropriate resources and attention to each?” (Chen, 1996, 101)
The aforementioned are more relevant to internal firm analysis than external competitor analysis given the weaknesses and threats a firm may face inherent to its industry and market and with respect to the competition. The question posed by Chen of whether a firm will retaliate is interlinked with the Upson et al research regarding the foothold. The interpretation of the foothold strategy with regard to retaliatory strategy in competitor analysis is that of a leverage tool to have a competitor firm think twice about increasing industry competition in the primary market. If the rival does not have a market foothold and is inherently weaker in the primary market strategy, a competitor firm may be able to attack the rival firm without retaliation.
The importance of establishing a foothold is identified as the primary measure to prevent retaliatory practice and to which a competitor firm does respond to a rival attack. “Any given foothold is especially valuable as a deterrent in relation to the competitor that has the highest market commonality with the firm that owns the foothold. A focal firm is most vulnerable to rivalrous moves by this competitor; thus, holding a foothold as a hedge against such moves is likely to be seen as useful.” (Upson et al, 2012, 96) The foothold therefore becomes the means of deterrence for rival firms to not pursue attack strategies. The foothold then becomes a defensive tool or mechanism to prevent attacks against the firm from rivals. Even should the foothold lose money, its presence as a possible attack or retaliatory mechanism is perhaps enough of an intrinsic value to protect against losses from an attack where there not a foothold presence in place. Upson et al and Chen draw on complementary research to provide a contiguous analysis of the issue of competitor analysis.
SUMMARY
Upson et al and Chen bring to light several issues with respect to competitor analysis. The research presented by the two authors is more comparable than is contrasting with respect to the definition of competitor analysis and the use of competitor analysis in industry and practice. The Upson et al research presents a theory that answers the questions surrounding competitor analysis posed by Chen. The use of a foothold in the market as defined by Upson et al is the retaliatory measure or the gauge to provide a measuring tool to keep the rival from competing too harshly. Chen’s research sought to identify how firms retaliate toward each other as a market move may just be a market move performed by the firm due to the firm seeking to position itself relative to its best interest. Therefore, the move will not inherently be an attack against the rival yet the perception may be that of an attack against the rival to which retaliation may follow.
The main comparison between the researchers is the identification of competitor analysis as a direct and indirect means of performing market research relative to the identification of competitive positioning. Upson et al provides the theory of foothold market analysis that complements Chen’s research. Chen will likely agree that use of the foothold is a rival response to a competitor market move as well as use of the foothold as a potential measure of attack to which a retaliatory response in the primary market may follow. The inter market dynamic of competitor firms operating in the same industry and sector is identified by Upson et al and Chen via use of the same scope and measure of framework. The framework of identifying competitor analysis by use of underscoring the firm rivalry and the market moves relative to the market positioning of the rivals is the inter market dynamic that is agreed upon to be the concrete link between the Upson et al and Chen research.
The authors share similar business views as they seek to define the underlying causes regarding the rivalry relationship between firms undergoing competitor analysis. The analysis of market activity within the scope of firm rivalries provides a framework to identify market moves and the potential motives behind each market move. Is the firm taking advantage of a market weakness or is the firm attacking a rivalThe foothold theory attempts to provide a means to analyze such a question and render an analysis that describes the move with respect to the relationship to the current market position of the rival. The key takeaway is the identification of the importance of market context relative to the firm rivalry interaction and the strategy of each firm as identified by the sequential market move of each firm in the market place.
References
M-J. Chen, Competitor Analysis and Interfirm Rivalry: Toward a Theoretical Integration. Academy of Management Review Vol. 21. No. 1, 100-134. 1996 http://gatton.uky.edu/Faculty/ferrier/Chen%201996.pdf
D Ketchen Jr. A. Ranf, J. Upson, Competitor Analysis and Foothold Moves. Academy of Management Journal Vol. 55. No. 1, 93-110. 2012 http://amj.aom.org/content/55/1/93.full.pdf+html

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