Xueming Luo, Aric Rindfleisch, and David K. Tse
Executive Summary
Organizational and marketing strategists have long espoused the idea that to achieve superior profitability, a firm must gain and sustain a marketplace advantage over its competitors. However, marketplace competition is only the tip of a much larger competitive landscape; underneath this tip lies a large arena in which competitor firms can and do cooperate for mutually beneficial gains (e.g., through joint research and development, product development). Thus, the rivalry view that dominates existing studies neglects the potential benefits of working with rivals.
In contrast to the rivalry view of competition as a "win–lose" game, the authors suggest that firms can form alliances with rivals (which they term "competitor alliances," or CA for short) to accomplish both competitive and cooperative goals and boost profits in a "win–win" manner. The authors identify several benefits from engaging in CA activities. However, because cooperation with competitors may also leave a firm vulnerable to opportunistic exploitation, they argue that firms need to be cautious about these alliances, especially when they are highly intense. The central tenets of this article are as follows: (1) CA activity that is either too low or too high harms a firm’s financial performance, and (2) the impact of CA on performance varies across different types of competitor-oriented mind-sets.
Based on a combination of both survey and archival data across two independent studies, the results indicate that firms may financially benefit from forming alliances with their rivals. Thus, marketing managers are encouraged to eschew the dogma of marketing warfare to assume a co-competitor mind-set and consider the potential benefits of not only competing with their rivals but also building effective alliances with them.
Thus, the results suggest that managers need to balance simultaneously both competition and cooperation to optimize potential risks and returns because both appear to have a "dark side." Particularly, cooperation with rivals needs to be carefully considered and judiciously executed because an overreliance on CA may be just as harmful as underusing the benefits of such alliances. Conversely, excessive cooperation may lead to "free-riding" effects and opportunistic exploitation by the alliance partners and may dull a firm’s incentives to stay customer focused.
Finally, many managers subscribe to the common refrain that being "competitor oriented" means a zero-sum rivalry in which maximizing market share or winning a price war will naturally improve their firm’s bottom line. The current research indicates that this refrain may need to be modified because the two studies provide empirical evidence that supports the financial advantages of building alliances with competing firms. Thus, managers should be competitor oriented yet in a prudent manner and with an open mind-set that does not exclude the opportunity of enhancing their financial performance by working with rivals.
Biography
Xueming Luo is an Assistant Professor of Marketing in the College of Business Administration at the University of Texas at Arlington. His research focuses on econometric modeling, strategic marketing, and international marketing/business. His work has appeared in academic and practitioner journals, such as Journal of Marketing Research, Journal of Marketing, Journal of the Academy of Marketing Science, International Journal of Research in Marketing, Journal of International Marketing, Journal of Business Research, Journal of Advertising Research, Industrial Marketing Management, and Journal of Consumer Psychology.
Aric Rindfleisch is an Associate Professor of Marketing in the School of Business at the University of Wisconsin–Madison. His prior academic appointments include the University of Arizona and Tilburg University. His research, which focuses largely on understanding interorganizational relationships, consumption values, and new product development, has been published in Journal of Marketing, Journal of Marketing Research, Journal of Consumer Research, Journal of Consumer Psychology, Journal of Public Policy & Marketing, Marketing Letters, and Business Horizons. He is a member of the editorial review boards of Journal of Consumer Research and Journal of the Academy of Marketing Science.
David K. Tse is Chair Professor of International Marketing and Director of Chinese Management Centre in the Faculty of Business and Economics at the University of Hong Kong. His research interests include China marketing, international marketing strategy, consumer satisfaction and services marketing. His work has appeared in academic journals, such as Journal of International Business Studies, Journal of Marketing Research, Journal of Marketing, Journal of Consumer Research, Journal of International Marketing, Journal of Business Research, and Journal of Advertising.
Journal of Marketing Research, Vol. XLIV, No. 1, February 2007
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