Strategic groups are clusters of firms within an industry that share similar strategies and business models. They help segment industries, revealing competitive dynamics and profit potential. Understanding these groups is crucial for identifying key competitors and success factors.

Mobility barriers are obstacles that prevent firms from easily moving between strategic groups. These barriers, like economies of scale or brand loyalty, protect profitable positions. Analyzing them helps predict competitive intensity and informs decisions about which market segments to pursue.

Strategic Groups in Industry Analysis

Defining Strategic Groups

• A strategic group is a set of firms within an industry that pursue similar strategies and have similar business models, operating characteristics, and competitive approaches
• Strategic groups are used to segment an industry into subsets of firms that directly compete against each other due to their strategic similarities
• Firms within a strategic group are likely to respond similarly to competitive moves, environmental changes, and industry trends
• Analyzing strategic groups provides insights into the competitive structure of an industry, key success factors, and profit potential of different strategic positions
• The presence of multiple strategic groups suggests that there are different viable competitive approaches and market segments within an industry

Role of Strategic Groups in Industry Analysis

• Strategic group analysis helps identify the most relevant competitors for a firm based on their strategic positioning and similarity
• Comparing the performance and competitive behavior of firms within a strategic group reveals the key success factors and best practices for that group
• Assessing the relative attractiveness of different strategic groups informs decisions about which market segments and competitive positions to pursue
• Tracking shifts in the relative size and performance of strategic groups over time provides insights into industry trends and changes in the competitive landscape
• Understanding the mobility barriers between strategic groups helps predict competitive intensity and profit potential in different parts of the industry

Mapping Strategic Groups

Key Dimensions for Mapping Strategic Groups

• Strategic groups are typically mapped along two key dimensions that capture the most relevant and distinguishing strategic characteristics of firms in the industry
• Common dimensions used for mapping strategic groups include:
  • Price/quality positioning refers to whether a firm competes on price (low cost) or differentiation (premium quality and features)
  • Degree of vertical integration captures the extent to which a firm controls its upstream suppliers (backward integration) and downstream distribution channels (forward integration)
  • Geographic scope distinguishes between firms serving local, regional, national or global markets
  • Product line breadth refers to the range of products or services offered, from narrow specialists (niche players) to broad line generalists (full-service providers)
  • Distribution channels used, such as direct sales, retail stores, online platforms, or value-added resellers
  • Degree of service and support provided to customers, ranging from no-frills to high-touch
• The specific dimensions chosen should expose the most meaningful differences in how firms compete and highlight mobility barriers between groups

Depicting Strategic Group Maps

• Strategic group maps are often depicted as two-dimensional matrices or bubble charts, with firms plotted based on their positions along the chosen dimensions
• The size of each firm's bubble on the map can represent its relative market share or revenue within the industry
• Firms in the same strategic group are clustered together, while greater distance between groups indicates higher mobility barriers and less direct competition
• Overlaying strategic group maps with performance measures (profitability, growth rate) provides insights into the relative attractiveness of different positions
• Comparing strategic group maps over time reveals shifts in competitive positions and industry structure

Mobility Barriers and Competitive Dynamics

Types and Impact of Mobility Barriers

• Mobility barriers are structural forces or industry characteristics that impede firms from moving between strategic groups
• Types of mobility barriers include:
  • Economies of scale make it difficult for firms to enter a strategic group that requires high production volumes to be cost competitive
  • Strong brand identity and customer loyalty can prevent firms from successfully moving into strategic groups with established brands
  • Privileged access to key distribution channels (exclusive contracts, owned retail networks) can limit the ability of firms to enter strategic groups that rely on those channels
  • Proprietary technology, patents, and trade secrets protect strategic groups from imitation and raise entry costs for new firms
  • High capital requirements for specialized equipment, facilities, or R&D create financial barriers to entering certain strategic groups
• High mobility barriers insulate strategic groups from competition and new entrants, allowing them to earn higher profits than groups with lower barriers
• Firms in strategic groups protected by high mobility barriers can focus on competing within their group rather than worrying about new entrants or rivals from other groups

Competitive Dynamics between Strategic Groups

• Low mobility barriers expose strategic groups to greater competition and profit pressures as firms can more easily change their strategic positioning
• When mobility barriers are low, there is a greater threat of new entrants and increased rivalry as firms from adjacent groups compete for the same customers
• Intense price competition often emerges between strategic groups with low mobility barriers as firms lack sustainable competitive advantages
• Strategic groups with higher mobility barriers are more likely to compete on non-price factors such as product features, quality, brand image, and customer service
• Firms may engage in strategic maneuvering to enhance their group's mobility barriers or to undermine those of rival groups
  • Investing in brand building, exclusive distribution, and proprietary technology to strengthen group-specific advantages
  • Lobbying for regulations that raise entry barriers or limit the competitive options of other strategic groups

Navigating Strategic Group Dynamics

Strengthening Position within a Strategic Group

• Firms can pursue a strategy of strengthening their position within their current strategic group to enhance competitiveness and profitability
• This involves investing in group-specific assets and capabilities that reinforce mobility barriers and differentiate the firm from group rivals
• Tactics for strengthening within-group positioning include:
  • Improving operational efficiency and cost structure through process optimization, scale economies, and supplier relationships
  • Building brand equity and customer loyalty through targeted marketing, product innovation, and superior service quality
  • Securing exclusive distribution deals or expanding owned distribution channels to control market access
  • Developing proprietary technologies and intellectual property to maintain a technological edge over group rivals

Shifting to a More Attractive Strategic Group

• Firms can seek to shift to a more favorable strategic group with higher mobility barriers and profit potential
• This requires significant investments to overcome mobility barriers and often involves changes to the firm's business model, target market, and core competencies
• The attractiveness of shifting groups depends on:
  • The height of entry barriers and the cost and time required to acquire necessary resources and capabilities
  • The intensity of competition and rivalry within the target strategic group
  • The firm's ability to establish a sustainable competitive advantage and defend its new position from imitation
• Successful group shifts often involve leveraging the firm's existing strengths and resources to reduce entry barriers and jumpstart competitiveness in the new position
  • Applying proprietary technology to a new market or product category
  • Extending a strong brand reputation to adjacent customer segments or geographic regions

Disrupting Strategic Group Structure

• Firms may attempt to alter the competitive dynamics of their industry by disrupting or redefining existing strategic groups
• This can involve pioneering a new business model, technology, or value proposition that renders current strategic group distinctions less relevant
• Disruptive strategies seek to attract customers from multiple existing strategic groups and create a new strategic position with high mobility barriers
• Examples of disruptive strategic moves include:
  • Introducing a low-cost business model that combines elements of different strategic groups to serve price-sensitive customers (budget airlines, online retailers)
  • Launching a groundbreaking technology that leapfrogs existing products and makes key dimensions of strategic group competition obsolete (digital cameras vs. film, smartphones vs. basic cell phones)
  • Creating a new market space that aligns with changing customer preferences and avoids head-to-head competition with established strategic groups (subscription-based services, sharing economy platforms)
• Disruptive strategies carry high risks and require significant innovation capabilities, but can also offer the potential for strong growth and high returns if successful