This part of the diamond focuses on the affect that competition has on rival firms in a relevant industry. Firms identify their strengths and capabilities to build on their market position and use a variety of strategies to remain competitive. True rivalry exists between firms that are comparable in size, power, product or service offering and their actions induce a response from their closest competitor. There are many strategies that firms engage in their attempt to gain a leadership position in the market, they include, pricing, product differentiation, brand image and the support services offered to consumers.
A strategy based on solely on pricing can be detrimental to ...view middle of the document...
The results of rivalry can be positive as it encourages firms to be innovative and on a continuous mission to release new and exciting products or services into the marketplace. Firms working together can create a sustainable market with less uncertainty.
Buyers and suppliers in the current markets have evolved into savvy sophisticated groups who are knowledgeable about the market place and all that it has to offer. They have high expectations of the finished product and its level of quality, they are in the market to obtain value. Porter suggests that a firm should intentionally seek difficult customers, as meeting their requirements encourages the firm to increase their standards to achieve this and immediately competitive advantage is increased. Identifying the requirements of these customers enables a firm to remain competitive by being first for innovation which stimulates growth in the industry.
Buyers are not only demanding higher quality in products they are also expecting a higher level of service and are pushing competition between firms and thus driving prices down. By increasing services offered in each transaction, operating costs are also increased reducing profits. In addition to these rising costs the competition that exists drives offering prices down, causing a simultaneous force of higher cost versus lower revenue and a negative impact on profits. Buyers hold the power in an industry when: there are limited numbers, they have the resources to purchase in large quantities,...