Meaning of strategic grouping
Identifying the Strongest or Weakest Companies
Identifying the strongest and weakest competitors is one of the biggest issue of competition analysis. In formulating strategy, company must know its own position and the position of its rivals company.
Strategic group mapping is a technique to keep all competitors in one group who have same or similar strategic approach. This is very useful technique when there are many competitors.
Companies in the same strategic group can resemble one another in any of the several ways:
- They may have comparable product-line breadth,
- Sell in the same price or quality range,
- Emphasize the same distribution channels,
- Use essentially the same product attributes to appeal to similar types of buyers,
- Depend on identical technological approaches, or
- Offer similar services and technical assistance to buyers.
An industry contains only one strategic group when all sellers pursue essentially identical strategies and have comparable market positions.
At the other extreme, there are as many strategic groups as there are competitors, when each rival pursues a distinctively different competitive approach and occupies a substantially different competitive position in the market place.
Steps in constructing Strategic group mapping -
Â Identifying the Strongest or Weakest Companies
The procedure for constructing a strategic group map and deciding which firms belong in which strategic group is straight forward.
There are following four steps in constructing strategic group map.
- Identify the competitive characteristics or variables that differentiate the firms in the industry
- PlotÂ theÂ firmsÂ onÂ aÂ two-variableÂ map, using X axis and y axis
- Assign firms that fall in same strategy
- Draw circles around each strategic group
- Identify the competitive characteristics that differentiate firms in the industry- Typical combinations of variables are
- Price and product-line breadth â€“Low, Average and high
- Price quality and range of the product -high, medium, low
- Price and geographic coverage -local, regional, national, global
- Price and degree of vertical integration -none, partial, full
- Price and use of distribution channels -one, some, all
- Price and degree of service offered -no-frills, limited, full
- PlotÂ theÂ firmsÂ onÂ aÂ two-variableÂ mapÂ usingÂ pairsÂ ofÂ theseÂ Â differentiating characteristics. Let x axis be product line breadth â€“low, average and high and y axis be price â€“low medium and high
- Â Assign firms that fall in the same strategy space to the same strategic group.
- Draw circles around each strategic group making the circles proportional to the size of the groupâ€™s respective share of total industry sales revenues.