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Mapping Strategic Groups

Mapping Strategic Groups is a technique used to analyze competitive positions of firms in an industry. Strategic groups consist of clusters of firms that employ similar competitive strategies and have comparable market positions. Understanding a firm's strategic group is important because these are their closest competitors. It also allows firms to identify alternative strategies from other groups and potential opportunities between existing groups.

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42 views2 pages

Mapping Strategic Groups

Mapping Strategic Groups is a technique used to analyze competitive positions of firms in an industry. Strategic groups consist of clusters of firms that employ similar competitive strategies and have comparable market positions. Understanding a firm's strategic group is important because these are their closest competitors. It also allows firms to identify alternative strategies from other groups and potential opportunities between existing groups.

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Cath M
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© © All Rights Reserved
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Mapping Strategic Groups

Mapping Strategic Groups - is a technique for displaying different competitive positions that
rival firms occupy in the industry.

Strategic Groups - is a cluster of firms in an industry with similar competitive approaches and
market position. Firms that are in the same strategic groups have at least two common
competitive characteristics. strategic groups in an industry can offer important insights to
executives. Strategic groups are sets of firms that follow similar strategies to one another.

Companies in same strategic group can resemble one another in any of several ways they may:

 Have comparable product line breadth - They have similar product lines and product line
breadth.
 Sell in same price/quality range - A strategic group may also sell the product
approximately at the same price and quality range.
 Use same product attributes to appeal to similar types of buyers - Firms in strategic group
usually are going after the same type of buyer with similar product attributes and;
 Cover same geographic areas

Understanding the nature of strategic groups within an industry is important for at least three
reasons.

First, emphasizing the members of a firm’s group is helpful because these firms are
usually its closest rivals. When assessing their firm’s performance and considering strategic
moves, the other members of a group are often the best referents for executives to consider. In
some cases, one or more strategic groups in the industry are irrelevant. Subway, for example,
does not need to worry about competing for customers with the likes of Ruth’s Chris Steak
House and P. F. Chang’s. This is partly because firms confront  mobility barriers  that make it
difficult or illogical for a particular firm to change groups over time. Because Subway is unlikely
to offer a gourmet steak as well as the experience offered by fine-dining outlets, they can largely
ignore the actions taken by firms in that restaurant industry strategic group.
Second, the strategies pursued by firms within other strategic groups highlight alternative
paths to success. A firm may be able to borrow an idea from another strategic group and use this
idea to improve its situation. During the recession of the late 2000s, mid-quality restaurant chains
such as Applebee’s and Chili’s used a variety of promotions such as coupons and meal
combinations to try to attract budget-conscious consumers. Firms such as Subway and Quiznos
that already offered low-priced meals still had an inherent price advantage over Applebee’s and
Chili’s, however: There is no tipping expected at the former restaurants, but there is at the latter.
It must have been tempting to executives at Applebee’s and Chili’s to try to expand their appeal
to budget-conscious consumers by experimenting with operating formats that do not involve
tipping.

Third, the analysis of strategic groups can reveal gaps in the industry that represent
untapped opportunities. Within the restaurant business, for example, it appears that no national
chain offers both very high-quality meals and a very diverse menu. Perhaps the firm that comes
the closest to filling this niche is the Cheesecake Factory, a chain of approximately 150 outlets
whose menu includes more than 200 lunch, dinner, and dessert items. Ruth’s Chris Steak House
already offers very high quality food; its executives could consider moving the firm toward
offering a very diverse menu as well. This would involve considerable risk, however. Perhaps no
national chain offers both very high quality meals and a very diverse menu because doing so is
extremely difficult. Nevertheless, examining the strategic groups in an industry with an eye
toward untapped opportunities offers executives a chance to consider novel ideas.

Reference:

Saylor Academy. (2012). Evaluating the External Environment. Strategic Management.

Retrieved from https://saylordotorg.github.io/text_mastering-strategic-management/s07-


evaluating-the-external-enviro.html

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