Firm Rivalry

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 a firm as the reduction in prices also reduces profits and encourages competitors to follow suit, which in turn can spark a price war. This was evident in the 2011 milk war. Coles, followed closely by Woolworths reduced the cost of Homebrand milk to $1 a litre, the chief for Coles reported that they were the losers in the battle as the competition has made it impossible to return milk prices to a position of positive return (Anon, 2011). Intense rivalry can reduce the available profits within an industry with consumers reaping the rewards that remain for the taking due to firms continually lowering prices in an attempt to remain competitive.

The differentiation of the products or services offered by firms remains the key indicator of profit levels, as firms that offer little difference in their product and service are subject to a higher level of competition with lower profits in return. When a consumer bears little or no negative affect for switching to a rival product or firm then the levels of rivalry increase and profits immediately decrease. To reduce rivalry, the products offered by a firm must have qualities that are unique and are unable to be replicated by