Answer: A strategic group is the group of firms in an industry following the same or similar strategy along the strategic dimensions. An industry could have only one strategic group if all the firms followed essentially the same strategy.
Strategic group forms by the following basis:
- Target market
The strategic group in an industry can be displayed in a map is called strategic group map. Strategic group can be presented for a wide variety of reasons, such as differing initial strengths and weakness, differing times of entry into the business, and historical accident etc, moreover if once groups are formed then the firms in the same. Strategic group generally resemble (the similar to) one another closely in many ways besides their broad strategies. Strategic group may have same market share or they may be affected by and respond similarly to external events or competitive moves in the industry due to their similar strategies. In this context, the map is a very useful way to graphically display competition in an industry and to see how industry changes or how trends might affect it. These characteristics can be better understood through strategic group map.
An industry can be mapped several times, using various combinations of strategic dimensions, to help the analyst see the key competitive issues. In this regard strategic group map is a tool that will help to diagnosis competitive relationships.
In mapping strategic groups, the few strategic variables use axes of the map that must be selected by the analyst. In this connection, at first, the best strategic variables will be selected (the best strategic variables are those that determine the sky mobility barriers in the industry) e.g. in soft drink the key barriers are brand identification and distribution channel.
Secondly, the variables will be selected that do not move together, EG if all the firms with high product differentiation also have broad product lines, then both these variables should not serve an axes on the map.
Thirdly, the axes of a map need not be continuous or monotonic variables (lack or variety) e.g. the target channel in the chain saw industry is serving dealers, mass merchandiser and sellers of private levels.
Having constructed a strategic group map of an industry a number of analytical steps can be illuminate such as:
- Identifying mobility barriers: The mobility barriers that protect each group from attacks from other groups and be identified.
- Identifying marginal groups: The group whose position in tenuous or marginal. These are the candidates for exit or taking attempts at moving into another group.
- Charting direction of strategic movement: A very important use of the strategic group map is to chart his directions in which firms strategies are moving and might draft from an industry wide point of view.
- Analyzing trends: Some factors can be predicted here about the industry evolution such as viability of the trends, placement of the shifting group, trends of elevating the barriers held by some group; reduce the ability to separate them along with some dimension etc.
- Predicting reaction: The map can be used to predict reactions of the industry to an event.
The actual profitability of particular firms in the industry should differ in the long run only insofar as they differ in their ability to implement the common strategy. If there are several strategic groups in an industry, however, the analysis is more complicated. The profit potential of firms in different strategic groups is often different, quite apart from their implementation abilities, because the five broad competitive forces will not have equal impact on different strategic groups.