Competitor Analysis: Strategic Group Analysis and Mapping

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Competitor Analysis: Strategic Group Analysis and Mapping

A Strategic Group is in competitor analysis a particular view towards a collection/group of companies in an industry having similar business models or similar strategies. Typically 2 key dimensions of that particular industry are used in order to distinguish direct rivals (those with similar strategies or business models) from indirect rivals. The term was coined by Hunt in 1972 while he conducted an analysis of the appliance industry.

STRATEGIC GROUP MAP
A Strategic Group Map (SGM) is a visualization or diagram of the existing strategic groups in some industry as observed from 2 chosen dimensions. In other words it is one type of visualization of the competitive environment.

STRATEGIC GROUP ANALYSIS
Strategic Group Analysis (SGA) is the process aimed at identifying (groups of) firms with similar strategic characteristics, following similar strategies or competing on similar bases. The results of the SGA can be summarized visually in one or more SGMs.

HOW TO CREATE A STRATEGIC GROUP MAP
These are the approximate steps of strategic group analysis which can be taken to construct a strategic group map:

1. Identify key competitive characteristics/dimensions that differentiate firms in an industry. For example: Product or Service Diversity, Pricing, Quality, Geographic Coverage etc.
2. Take two of such dimensions and draw a two-variable map. For example: Price and Product Variety.
3. Plot existing competing firms in the diagram according to the chosen characteristics. Certain groups may appear, falling in the same approximate strategic space, forming a strategic group.
4. Draw circles around the groups. You can use a circle size proportional to the respective group's share of total industry sales.

Below a sample strategic group map of car manufacturers based on the dimensions "Price" and "Breadth of Product Line".



ADVANTAGES OF STRATEGIC GROUP MAPPING. BENEFITS
Strategic group mapping includes following key advantages:

• Helps to identity direct competitors. In a SGM, the firms in one's own circle are direct competitors. For example, in our map Hyundai and Kia are direct competitors.
• Helps to find out cross-group rivalry. The closer a group is with the other, the higher the cross group rivalry between the groups. In our example, the Ferrari-Porsche-Lamborghini group's cross group rivalry is relatively stronger with the Mercedes-BMW group.
• Helps to find strategic business opportunities. In particular any (large) blank spaces in between groups might indicate a strategic business opportunity.

ASSUMPTIONS AND PRECAUTIONS

• The composition and number of the groups within an industry depends on the dimensions used to define the groups.
• The diagrams are just a visual model. The reality is more complex and has more than 2 dimensions.
• There are at least four levels of competition.
• Do not mix up strategic groups with the similar perceptual maps which are positioning tools.
• Do not mix up strategic groups with Porter's clusters which are geographic concentrations of interconnected companies.

See also this video on strategic group mapping.

Sources:
Hunt, M. (1972) "Competition in the Major Home Appliance Industry", doctoral dissertation, Harvard University, 1972.
Meilich, O. (2019), "Strategic Groups Maps: Review, synthesis, and guidelines", Journal of Strategy and Management, Vol. 12 No. 4, pp. 447-463

		Comments by date▼ Comments by rating Rating
		2 Warren D. Miller, CPA, CFA Strategy Consultant, United States
	Nissan Logo Your strategic-group analysis in the automobile industry is spot-on. Thanks so much. Unfortunately, the Nissan logo is backwards. I just wanted to let you know.

		0 Munadil Shafat Student (MBA), Bangladesh
	Backward Logo @Warren Miller, CPA, CFA: Really glad that you read it in such a details. Don't know how the mistake occurred but will try to resolve it by asking help from the Editor.

		1 Jaap de Jonge Editor, Netherlands
	Nissan Logo Fixed Did it. Everything for our critical members:-).

		0 Warren D. Miller, CPA, CFA Strategy Consultant, United States
	Quasi-Mandatory Dimensions of Any Strategic Group Involving SMEs Thank you for getting the logo reversed. It looks terrific! Thank you, too, for reminding us of the wonderful favor that Hunt (1972) did for all of us who work with SMEs: he provided a phrase that defined them. How can we describe the strategic groups of SMEs? The overwhelming number of them--something north of 99%, I'd bet--compete within a given geographical area. Therefore, while that dimension should be disclosed, it need not be one of the two that defines the strategic group, (i.e., the strategic group that competes within a radius of 100 miles of ABC (city) and XYZ (state or provinice). It should be defined by (a) the range in size of SMEs competing head-to-head in a given market. In this context, size tends to be determined by HEADCOUNT because, within a population of non-public companies that don't have to report audited financial statements publicly, headcount is the only reliable and easy-to-obtain measure of size. The second dimension is almost always (b) what their TARGET MARKET is (e.g., wealthy consumers, small companies needing tax services, etc.).