What are the three aspects of mapping strategic groups?

To explain what strategic groups are, we think the best way is to do it with Michael Porter's definition: “the set of companies in an industry that follow the same or a similar strategy in all strategic dimensions”. For Porter, a strategic group is a subset of companies, within the set that makes up an industry, with a strongly similar “profile” of all strategic dimensions.

A map of strategic groups is a beneficial technique for analyzing and making decisions in sectors with a lot of competition. It takes two dimensions that are not directly related to each other (linearly independent), uses them to construct two Cartesian axes, and includes the “subset of companies” in this graph. Its location will be according to where they score according to the chosen dimensions, and they are graphed in the form of circles, in a size that reflects the size of the company.

So, what is the purpose of these groups? Well, it is very useful to analyze the industry to which our company belongs, especially when it has many competitors. Let's start at the beginning. Strategic groups arise because the companies that are part of them have similar:

• Objectives: They want to dominate the market and be innovation leaders, for example.
• Capabilities: They know about marketing and similar technologies, for example.
• Assumptions about the functioning of the market: For example, consumers are loyal to the brands they know.
• Experiences: They operate in roughly the same countries and have had similar experiences in the business.

For all these reasons, the strategy of all the companies within the group is similar in some respects. Examining these companies that function within the same strategic group is called strategic group analysis.

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This type of analysis is often discussed in conjunction with the market focus. In the market approach, the consumer population is divided into market segments that share common characteristics such as level of education, income, age, and gender. Research companies study the general preferences of market segments and then use those preferences to gear products and services toward specific market segments that are served by strategic groups.

The objectives of strategic group analysis vary depending on various characteristics of the strategic groups, including the size of the market, the diversity of products offered, the geographic proximity of competing companies, and where the products are sold. Keep in mind that branding, marketing, quality, and price are also factors that must be considered and taken into account. For example, a company could use this analytical tool to identify competitors and determine how companies within that group's competition perform. In other words, an organization that is going to launch a new product on the market could carry out an analysis to determine how to compete when entering it.

Creating a map of the companies that make up each market segment helps entrepreneurs uncover any markets that are underserved or useless by the strategic groups it contains. For all these reasons, an in-depth analysis is a fundamental step for any company that wants to compete with its opponents in the business niche on which it focuses.

It is important to mention that you can (and probably should) do more than one strategic group map. This allows us to analyze different aspects of the competition and the positioning of our company concerning it, and even identify different empty spaces in the market.

In conclusion, we can say that companies that sell products or offer similar services to the same segment of the population are in a strategic group and their analysis will help you to distinguish who your competitors are. Indeed, being aware of who your competition is will allow you to know:

A strategic group is a concept used in strategic management that groups companies within an industry that have similar business models or similar combinations of strategies. For example, the restaurant industry can be divided into several strategic groups including fast-food and fine-dining based on variables such as preparation time, pricing, and presentation. The number of groups within an industry and their composition depends on the dimensions used to define the groups. Strategic management professors and consultants often make use of a two dimensional grid to position firms along an industry's two most important dimensions in order to distinguish direct rivals (those with similar strategies or business models) from indirect rivals. Strategy is the direction and scope of an organization over the long term which achieves advantages for the organization while business model refers to how the firm will generate revenues or make money.

Hunt (1972) coined the term strategic group while conducting an analysis of the appliance industry after he discovered a higher degree of competitive rivalry than suggested by industry concentration ratios. He attributed this to the existence of subgroups within the industry that competed along different dimensions making tacit collusion more difficult. These asymmetrical strategic groups caused the industry to have more rapid insnovation, lower prices, higher quality and lower profitability than traditional economic models would predict.

Michael Porter (1980) developed the concept and applied it within his overall system of strategic analysis. He explained strategic groups in terms of what he called "mobility barriers". These are similar to the entry barriers that exist in industries, except they apply to groups within an industry. Because of these mobility barriers a company can get drawn into one strategic group or another. Strategic groups are not to be confused with Porter's generic strategies which are internal strategies and do not reflect the diversity of strategic styles within an industry.

Originally, the analysis of intra-industry variations in the competitive behaviour and performance of firms was based primarily on the use of secondary financial and accounting data. The study of strategic groups from a cognitive perspective, however, has gained prominence during the past years (Hodgkinson 1997).

Strategic Group Analysis[edit]

Strategic Group Analysis (SGA) aims to identify organizations with similar strategic characteristics, following similar strategies or competing on similar bases.

Such groups can usually be identified using two or perhaps three sets of characteristics as the bases of competition.

Examples of the SGA:

• Extent of product (or service) diversity.
• Extent of geographic coverage.
• Number of market segments served.
• Distribution channels used.
• Extent of branding.
• Marketing effort.
• Degree of vertical integration.
• Product (or service) quality.
• Pricing policy.

Use of Strategic Group Analysis This analysis is useful in several ways:

• Helps identify who the most direct competitors are and on what basis they compete.
• Raises the question of how likely or possible it is for another organization to move from one strategic group to another.
• Strategic Group mapping might also be used to identify opportunities.
• Can also help identify strategic problems.

Jeannet and Schreuder (2015, pp. 95–99) provide an example how Strategic Group Analysis is used in practice for determining business strategies in a successful multinational firm.

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