Strategic Group Mapping is analytical tool used for showing the different market or competitive positions that rival firm occupy in the industry. It is very important to analyze the industry’s competitive structure and indentify the strategic groups (strategic group is a set of business units or firms that pursue similar strategies with similar resources). Each industry contains one or more than one strategic group depending upon the strategies and market positions of industry members.
Purpose of Strategic Group Maps
Identification of close and distant rivals. This is important to know because close strategic groups have stronger cross-group competitive rivalry.
Identification of attractive and unattractive positions of the firms in industry. This attractiveness depends upon the industry driving forces, prevailing competitive pressures and profit potentials of different strategic groups.
Strategic group mapping helps in identifying the strategic group a firm should consider entering.
It helps in analyzing the type and level of entry barriers the firm will face.
It also examines the number and type of entry barriers the firm will face.
Guidelines for Constructing Strategic Group Maps
- There should be no correlation between the variables selected as axes for the map.
- There should be a big difference between the variables selected. This will help to easily identify the rival’s position in the market place.
- The variables selected should be discrete rather than quantitative or continuous.
- A relative size of each strategic group depends upon the combined sales of the firms in each strategic group.
- Different competitive variables should be used as axes for the map because there is not necessarily one best map.
Steps in the Construction of Strategic Group Maps
Analyzing the overall industry and indentifying those competitive characteristics that differentiate firms in the industry. Variables selected as axes for the map could be identified during the process of industry analysis.
Variables selected as axes for the map could be product-line breadth (wide, narrow), price (high, medium, low), quality (high, medium, low), geographic coverage (local, regional, national, global) etc.
Using two-variable map, plot all the firms in the industry. For example price (high, medium, low) can be taken on x axis whereas product-line breadth (wide, narrow) on y axis and all the firms can be plotted accordingly.
All the firms that fall in the same strategy space should be allocated to the same strategic group.
Finally, sketch circles around each strategic group. The size of the circles depends upon the share of a strategic group in the total industry sales revenue.
Group Mapping of Retail Chains
There are always competitive pressures and driving forces which adversely affect the firms in strategic groups. Therefore, some firms may try to shift to a more favorably situated group. This shifting is however difficult if the entry barriers of the target strategic group are high. An arrow can be attached to the circles showing the targeted direction of the firms which are trying to change their competitive positions on the map.