Leg 2 from Lisbon to Cape Town (IV). Strategic Group Analysis.

eleonoraescalantestrategy 19 Nov 2017 Leave a Comment

Good day for all of you.

Today theme is Strategic Group Analysis. Theme 2 Intraindustry analysis outline 3.jpg

Here we are again. The analysis of the strategic groups in an industry can offer important insights to executives. This topic is very useful for mapping your future competitors when considering an entry strategy for example. It is extremely helpful as a descriptive tool because it provides a broad picture of the types of firms within an industry and the kinds of strategy that have proven viable for them. Finally, it is a useful tool in strategy not just for private sector companies, but also for government entities and non-profit organizations. The strategic group analysis contributes to an understanding of the structure, competitors, and evolution of an industry.

“Strategic Group Analysis looks at a specific industry players’ positions in the competitive environment and the underlying factors that determine a company’s profitability, as well as the competitive dynamics of an industry. It attempts to characterize the strategies of all significant competitors along broad strategic dimensions. These dimensions differentiating players into strategic groups must be chosen with respect to industry structure, profitability factors, and the project issues being addressed.”

Strategic groups can be created based on many variable dimensions:

Price
Specialization
Brand identification
Channel selection
Product quality
Technological position
Vertical integration
Cost position
Service
Price policy
Financial or operating leverage
Parent company relationship
Government relationship

In addition, we can create our own relative indicators, for example, Price/quality. Or we can also create financial indicators relative to size companies (sales).

Strategic groups are groups or sets of firms that follow similar strategies to one another. More specifically, a strategic group consists of a set of industry competitors that have similar characteristics to one another but differ in important ways from the members of other groups.

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If you wish to download the last set of slides, click here: Eliescalante Segmentation Theme 2. Strategic Group Analysis

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.
Burger King, McDonalds and Wendy´s are in the same strategic group.

Burger King or Mc Donalds or Wendys for example, do not need to worry about competing for customers with the likes of burgers of specialty luxurious restaurants with high-price or other specialty burger restaurants such as

Stanich´s number one burger in America.

Stanich´s with his “Nick´s Cheeseburger with Grilled Onions”, number one in ranking by the Thrillist in America. This is partly because firms confront mobility barriers that make it difficult or illogical for a particular firm to change groups over time. Burger King, Mc Donalds and Wendy´s belong to the same industry group, and they will not offer a fine-dining experience. This hamburger group can ignore the activities or proceedings taken by firms in the fine-dining restaurant industry which offer gourmet burgers. Little competition has the Restaurant Honky Tonk with Mc Donalds. Honky Tonk is an American diner-style restaurant located in the UK which won a World Record with a £1,100 ($1,770) “Glamburger”. Incredible!

Chef creates ‘Glamburger’ for $1,770
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. For example, main supermarkets in several towns all over the world, have used the same pricing strategies of Dollar Tree, Dollarama or One Dollar discount type of retailers, for food essential products such as grains, rice, milk, pasta, oats, oil, bath and kitchen essentials, in order to try to attract back their budget-conscious consumers. Also, other firms such as local coffee houses that offered low priced coffee in the past, with the entrance of Starbucks, have raised their prices in order to get a price advantage.
Helps assess current and potential strategic movements of the competitors in the market. A firm can foresee different paths on how to move and react in advance to the strategic movements of the competitors. Starbucks Reserve and Roastery concepts new release in the coffee shops market will generate reactions. There are some competitive strategic movements expected from Starbucks main competitors. What would Peet’s Coffee & Tea do? What would Dunkin Donuts do? What would Costa Coffee do? or Mc Cafe? What do you think?
Mc Café Paris Louvre

See you tomorrow with the Competitor Analysis. Cheers!