Strategic Group Model
The strategic group model is a concept in strategic management which looks at industries constituted by firms that perform in similar ways. It provides a means of extending the scope of analysis beyond individual firms and looking at groups of firms considered to be in direct competition with each other. The concept was developed by Michael E. Porter in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980). The model helps to illustrate that while a market may appear to be homogeneous with all firms offering the same products and services, there are often groups of firms closely related to each other which are in direct competitive positions. The model has since been applied to a wide range of business and economic issues including industries, market positions and competitive strategies.
Strategic group mapping, a technique for visualizing the competitive landscape, is a graphical representation of the strategic group model. The model is based on two axes, which represent market factors chosen by the analyst (e.g. price and quality). Each firm located within the bubble is assigned a position within the strategic group, which is seen as the closest to its competitors after considering the two main factors and alluding to similar characteristics of the group.
The strategic group model is used by businesses to identify groups of competitors and to categorize rival strategies. It is also used to determine the profitability and competitive advantages of various market segments and to determine the optimal positioning of a firm relative to its rivals. The model is used to evaluate the competitive environment and to measure a firm’s competitive advantages and disadvantages.
The strategic group model is not only a useful tool for understanding the competitive environment, but it also helps firms to identify their own and their rivals’ competitive advantages and disadvantages. By understanding the competitive forces that exist within each group and the key factors that differentiate them, firms can gain insights into what Strategies will lead to greater success.
Through the strategic group model, firms can determine precisely how they will best position themselves and their rivals relative to each other. This helps to ensure that they understand the competitive forces present in the market and helps to guide product and pricing decisions. By positioning a firm in an optimal location within the strategic group and by understanding the competitive dynamics of the market, firms can gain an advantage over their rivals.
The strategic group model provides firms with the ability to identify and analyze the competitive environment, to understand the competitive advantages of their rivals and to position themselves in the best way possible relative to the competition. Through the use of this model, businesses can gain a competitive edge over their rivals and, in turn, increase their profitability.
