2.3.4 How do I conduct a Strategic Group Analysis?

To distinguish between strategic groups within a sector and to analyse the differences in their behaviour, the following criteria can be used (Müller-Stewens 2005):

  • Vertical and horizontal integration
  • Geographical market segmentation
  • Ownership structure
  • Company size
  • Capacity utilization
  • Cost structure
  • Sales channels
  • Marketing activities
  • Brand ownership
  • Product diversity
  • Product quality
  • R & D capability

In order to visualize the segmentation of strategic groups, it is useful to design a "map" (Müller-Stewens 2005):

  • For this purpose you have to determine two or more criteria which can help you classify the strategic groups. These criteria form the axis, where you can sketch the segmentation matrix. Make sure you use criteria, which are of high importance in terms of the behaviour of your competitors.
  • Thereafter the companies in the sector will be positioned on the map.
  • The last step is to divide the companies into strategic groups. The companies which are closest to each other form a strategic group. Additionally you can illustrate the market share of the strategic groups by the size of the circles. Such a map is outlined below (the size of the circles does not represent the market shares in this figure):

 

Click on the thumb nail to enlarge figure 3:Strategic groups within the automotive industry, Müller-Stewens & Lechner (2005). 

After designing the map of strategic groups you can execute following analysis methods:

  • Analyse the attractiveness of each group by performing a "five forces" analysis on each group. Section 2.2 provides an outline of Porter´s Five Forces model.
  • Identify the mobility barriers that inhibit the movement of firms between strategic groups:
    • The "height" of entry barriers depends on the particular strategic group that the entrant seeks to join
    • Mobility barriers are group-specific entry barriers that restrict the shifting of strategic groups from one position to another
    • Mobility barriers prevent quick imitation of successful strategies
    • The most important aspect of any strategic group analysis is identifying the mobility barriers that impede movement between groups
    • There is no exhaustive list of mobility barriers