What different competitive strategies companies use?
In the twenty-first century, the world is getting more and more competitive day by day. Everyone is in the race to be at the top and are looking for new ways to reach the top. If you look at any industry or market, the competitors are finding/trying a new business strategy to get an edge over others and to gain profit.
What is Strategy?
It's just the player’s plan of actions in a game. A strategy is a long-term plan that you create for your company to reach the desired, future state you envision. A strategy includes your company’s goals and objectives, the type of products/services that you plan to build, the customers to who you want to sell, and the markets that you serve to make profits. Strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization’s top managers on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization operates.
A company chooses different strategies in different situations. The right strategy depends on the situation the company is in right now. A company may choose to follow a particular strategy where they would take risks to gain superiority and sometimes it may choose a cooperation deal with the competitor and won't risk anything. It totally depends on the situation company is in right now.
Let us now look at some of the strategies companies commonly take during these situations.
Simultaneous strategy:
In Game Theory, a simultaneous game or simultaneous strategy is a game where each player chooses their action without knowledge of the actions chosen by other players. Unlike in sequential strategy, the player doesn't play turn by turn, here both the players normally decide at the same time. All players select strategies without observing the choices of their rivals and players choose at the same time. Great examples of Simultaneous strategy are Nash Equilibrium and Prisoners Dilemma.
Nash Equilibrium:
Nash equilibrium is a combination of strategies. Nash Equilibrium is attained when no player can deviate unilaterally from his/her current strategy to improve his/her payoffs. Nash equilibria are self-enforcing contracts, in which negotiation happens before the game being played in which each player best sticks with their negotiated move. In other words, the Nash equilibrium is not a dominant strategy.
Prisoners Dilemma:
Prisoner's Dilemma is a simultaneous strategy where both players have an individual incentive to advertise anyway regardless of what the other player does. Here the problem is not about having appropriate information because players know the game inside out. The Dilemma arises when both the players act selfishly for their own good. This results in no maximization of joint profits.
Sequential strategy:
In game theory, a sequential game or sequential strategy is a game where one player chooses their action before the others choose theirs. Here, the first decision of any player starts the game. From there the decision of subsequent players branch out accordingly. Importantly, the later players must have information about the first’s choice, otherwise, the difference in time would have no strategic effect. A sequential strategy always creates a Game Tree. Examples of Sequential strategies are Price setting, Backward induction.
Price setting:
Price setting strategy is a form of the sequential game where a business sets the appropriate prices for their product after examining and studying competitors' product prices. A company can use different pricing strategies when selling a product or service. To identify the most effective pricing strategy for a company, senior executives need to first identify the company’s pricing position, pricing segment, pricing capability, and competitive pricing reaction strategy. Through this strategy, a company can stay ahead of competitors on a price basis.
Backward induction:
Backward induction is a simplification of sequential games. This is a process of reasoning backward, from the end of a problem or situation, to solve finite extensive form and sequential games, and infer a sequence of optimal actions. At each stage of the game, backward induction identifies the strategy of the player who makes the last move in the game. This process continues backward until the best action for every point in time has been determined. Effectively, one is determining the Nash equilibrium of the original game.
This strategy eliminates actions at the final node and works one’s way up. This strategy chooses those actions that would not maximize an individual’s profit at that point. A rational player always tries to maximize their own profits. You can rely on a rational rival never choosing these actions
Sometimes a company rather than playing a strategic game with their competitors they tend to agree on a coordination game or cooperation with their competitor, we will see this in another blog.
There are even more various types of strategies companies use during different stages and different situations. Any company that plays in the game with their rival always tries new strategies to stay ahead of the game, there is no one strategy a company stays on. A company always analyze their situation and plan accordingly their strategy to stay ahead in the competition.
