What is Strategic Group Mapping?
Strategic group mapping can be defined as the analysis of firms’ competitive positions in a particular industry, or, in other words, the analysis of firms’ competitive positions within strategic groups.
A strategic group can be defined as a group of firms in an industry that follows the same or similar strategy for competitive advantage.
The competition between firms within the strategic group is greater than the competition between a member of a strategic group and companies outside that strategic group.
Intra-strategic group competition is more intense than inter-strategic group competition. Strategic groups of firms within an industry constitute a cluster and imply that the firms in the same industry may not be direct competitors for the firms.
The performance leaders within the group follow strategies similar to those of other firms in the group. However, they maintain some distinctiveness to gain and sustain a competitive advantage.
Thus, strategic group mapping helps us understand which factor, i.e., quality, price, service, or anything else, a company differs from others in a strategic group.
As so, the firms in a strategic group may be treated similarly on the grounds of technological leadership, product quality, pricing policies, distribution, and customer service.
The concept is useful for analyzing a competitive structure which helps diagnose competition, positioning, and the profitability of firms within an industry.
Benefits of Strategic Group Mapping
Here are 5 key benefits of strategic group mapping:
Identifies Direct Competitors
Strategic group mapping helps businesses understand which firms are their closest competitors within the same strategic group.
By analyzing firms with similar strategies, businesses can focus on their real rivals instead of wasting resources on irrelevant competitors.
Reveals Market Opportunities
By visually plotting firms on a strategic group map, businesses can identify gaps in the market or under-served areas.
These gaps can present opportunities to develop new strategies, target niche segments, or differentiate offerings to gain a competitive edge.
Enhances Competitive Benchmarking
Firms can compare themselves with other businesses in the same strategic group to evaluate their strengths and weaknesses.
This helps identify areas for improvement, such as product quality, pricing strategies, or service offerings.
Guides Strategic Decision-Making
Strategic group mapping provides insights into industry dynamics and helps firms make informed strategic decisions.
Understanding where a company stands relative to competitors can guide decisions on market positioning, resource allocation, and long-term strategies.
Assesses Industry Profitability
The map highlights differences in profitability and competitive intensity across strategic groups.
Firms can assess which groups face the most rivalry and which offer more favorable profit potential. This helps businesses choose strategic positions that maximize profitability.
Steps to Create a Strategic Group Map
Here’s a step-by-step process for creating a strategic group map to analyze competitive positions within an industry:
Identify the Key Competitive Variables
Start by identifying the most important competitive variables that differentiate firms in the industry. These variables should highlight the strategic factors companies use to gain an advantage.
Examples include:
- Price levels (low, mid-range, high)
- Product quality (standard, premium, economy)
- Distribution channels (physical stores, online, hybrid)
- Market coverage (local, regional, global)
- Customer service levels (basic, advanced)
Choose variables that best represent the industry dynamics and competitive positions.
Select Two Critical Variables
From the identified variables, select two critical variables to serve as the X and Y axes of the map. These variables should:
- Be measurable and have enough variance across firms.
- Highlight meaningful differences in competitive strategies.
For example:
- X-axis: Price (Low to High)
- Y-axis: Product Quality (Economy to Premium)
These axes will help you visually separate firms based on their strategies.
Plot the Firms
Position the firms on the map based on where they stand on the two selected variables. Follow these steps:
- Place firms closer together if their strategies are similar.
- Use circles or dots to represent firms.
- Optionally, vary the circle size to indicate additional factors such as market share, revenue, or growth rate.
For instance: In the smartphone industry, Apple might be plotted in the high-price, premium quality area, while Realme might be placed in the low-price, economy quality area.
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Identify Clusters (Strategic Groups)
After plotting all firms, observe the map to identify clusters of firms that follow similar strategies. These clusters represent strategic groups within the industry.
- Each group highlights firms that compete more closely with each other than with firms outside the group.
- Firms within the same cluster may have similar pricing policies, product quality, or target customers.
For example: Luxury car brands like Mercedes and BMW form one group, while budget car brands like Toyota and Hyundai form another.
Analyze Results
Analyze the strategic group map to draw actionable insights, such as:
- Competitive Rivalry: Firms in the same group face intense competition, while rivalry between groups may be less severe.
- Market Gaps: Identify any unoccupied spaces on the map, which may represent new opportunities for firms to target.
- Profitability Differences: Assess which groups are likely to be more profitable based on competitive intensity.
- Mobility Barriers: Analyze how difficult it is for firms to move between groups due to resource or cost constraints.
3 Examples of Strategic Group Mapping
Strategic group mapping can be applied across industries to analyze competitive positioning. Here are three real-world examples:
Airline Industry
In the airline industry, firms are often grouped based on their price levels and service offerings.
- Key Variables:
- X-axis: Price (Low to High)
- Y-axis: Service Quality (Basic to Premium)
Strategic Groups:
- Full-Service Carriers: Airlines like Emirates, Singapore Airlines, and Lufthansa operate in the high-price, premium service segment.
- Low-Cost Carriers: Budget airlines like Ryanair, EasyJet, and Spirit Airlines fall into the low-price, basic service group.
This mapping shows the intense competition within each group and highlights market gaps, such as opportunities for mid-tier airlines with balanced prices and service levels.
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Automobile Industry
The automobile industry groups firms based on price range and product quality.
- Key Variables:
- X-axis: Price (Low to High)
- Y-axis: Product Quality (Economy to Luxury)
Strategic Groups:
- Luxury Car Manufacturers: Brands like Mercedes-Benz, BMW, and Audi compete in the high-price, premium-quality segment.
- Budget Car Manufacturers: Companies like Toyota, Hyundai, and Suzuki operate in the low-price, economy quality space.
- Mid-Range Brands: Automakers like Volkswagen and Honda bridge the gap between the two extremes.
This mapping highlights competitive clusters, customer targeting, and potential market gaps, such as affordable electric vehicles.
Fast-Food Industry
The fast-food industry can be mapped based on price and menu variety.
- Key Variables:
- X-axis: Price (Low to High)
- Y-axis: Menu Variety (Limited to Extensive)
Strategic Groups:
- Premium Fast-Casual Chains: Brands like Chipotle and Panera Bread offer higher-quality, customizable options at premium prices.
- Traditional Fast-Food Chains: Companies like McDonald’s, Burger King, and KFC dominate the low-price, moderate menu variety segment.
- Niche Chains: Brands like In-N-Out Burger offer limited menus but focus on quality and customer experience.
This mapping reveals competition intensity within segments and opportunities for new entrants, such as health-focused fast-food options.
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Sujan Chaudhary holds a BBA degree. He loves to share his business knowledge with the rest of the world.