The Concept of Strategic Groups

Digital Marketing - Study Notes:

Strategic groups

Industry analysis can be too high level to provide a detailed understanding of competition. For example, Ford and Rolls Royce are in the same generic automobile industry. However, they experience different entry barriers and are positioned in different ways so that they are not in direct competition with each other. The Five Forces can have different impacts on different kinds of players, which requires a more fine-grained understanding.

Strategic groups analysis is a tool that can help you analyze different types of competitors within the same industry.

Strategic groups are organizations within the same industry or sector with similar strategic characteristics, following similar strategies, or competing on similar bases.

Johnson et al. (2017) outline some parameters used to identify strategic groups:

Resource commitment

The parameters for analyzing resource commitment include:

• Marketing efforts
• Number of brands
• Extent of vertical integration
• Product or service quality
• Size of the organization
• Technological leadership
• R&D capability

Scope of activities

The parameters for analyzing the scope of activities include:

• Product diversity
• Geographical scope
• Market segments targeted
• Distribution channels used

Benefits of strategic groups analysis

Strategic group analysis is mostly used as a descriptive tool and is useful in several ways:

• It helps identify the most direct competitors for an organization.
• It shows challenges or possible paths for companies willing to move from one strategic group to another.
• It might be used to identify strategic opportunities by showing gaps or vacant spaces where opportunities for new strategies and strategic groups could arise.

Strategic groups example

R&D Intensity on the y-axis is measuring the level of research and development investment.

• Overseas Focus on the x-axis is indicating the extent of international market presence or focus.

There are four distinct strategic groups identified in the analysis:

• This group is characterized by low R&D Intensity and low Overseas Focus. These companies tend to have minimal investment in research and development activities and have limited international market presence.
• Emergent Globals This group exhibits high R&D Intensity and high Overseas Focus. Companies in this group prioritize both research and development investment and expanding their presence in international markets.
• This group demonstrates low R&D Intensity but high Overseas Focus. These companies may not heavily invest in research and development activities but place significant emphasis on outsourcing and expanding their operations in foreign markets.
• This group falls in the middle range, with moderate R&D Intensity and moderate Overseas Focus. Companies in this group strike a balance between investment in research and development and their international market presence.

The chart also shows additional information for each strategic group. It includes the number of companies within each group, which indicates the prevalence or size of each category. Additionally, the chart displays the average return on sales for each strategic group, providing insights into the profitability or financial performance associated with different groupings.