STRATEGIC GROUP MAPPING A strategic group is a concept used in strategic management that groups companies within an industry that

have similar business models or similar combinations of strategies. For example, the restaurant industry can be divided into several strategic groups including fast-food and fine-dining based on variables such as preparation time, pricing, and presentation. The number of groups within an industry and their composition depends on the dimensions used to define the groups. Strategic management professors and consultants often make use of a two dime nsional grid to position firms along an industry's two most important dimensions in order to distinguish direct rivals (those with similar strategies or business models) from indirect rivals. Strategy is the direction and scope of an organization over the long term which achieves advantages for the organization while business model refers to how the firm will generate revenues or make money. Hunt (1972) coined the term strategic group while conducting an analysis of the appliance industry after he discovered a higher degree of competitive rivalry than suggested by industry concentration ratios. He attributed this to the existence of subgroups within the industry that competed along different dimensions making tacit collusion more difficult. These asymmetrical strategic groups caused the industry to have more rapid innovation, lower prices, higher quality and lower profitability than traditional economic models would predict. Michael Porter (1980) developed the concept and applied it within his overall system of strategic analysis. He explained strategic groups in terms of what he called "mobility barriers". These are similar to the entry barriers that exist in industries, except they apply to groups within an industry. Because of these mobility barriers a company can get drawn into one strategic group or another. Strategic groups are not to be confused with Porter's generic strategies which are internal strategies and do not reflect the diversity of strategic styles within an industry. Originally, the analysis of intra-industry variations in the competitive behaviour and performance of firms was based primarily on the use of secondary financial and accounting data. The study of strategic groups from a cognitive perspective, however, has gained prominence during the past years (Hodgkinson 1997). Strategic Group Analysis Strategic Group Analysis (SGA) aims to identify organizations with similar strategic characteristics, following similar strategies or competing on similar bases. Such groups can usually be identified using two or perhaps three sets of characteristics as the bases of competition. Examples of Characteristics y Extent of product (or service) diversity y Extent of Geographic coverage y Number of Market segments served y Distribution Channels used y Extent of Branding y Marketing Effort y Product (or service) quality y Pricing policy Use of Strategic Group Analysis This analysis is useful in several ways: y Helps identify who the most direct competitors are and on what basis they compete. y Raises the question of how likely or possible it is for another organization to move from one strategic group to another. y Strategic Group mapping might also be used to identify opportunities. y Can also help identify strategic problems. The strategic group analysis provides a good framework for management to be aware of their direct competitors and one analytical tool that is useful for comparing the market positions of each firm separately or by grouping them into positions is the Strategic Group Mapping. This tool however does not as such, show how in reality an organisation can maintain or even gain competitive advantage over its rivals (Thompson and Strickland, 2003). It would be therefore suggested that Porters Three Generic Strategies, whereby organisations can gain competitive advantage over their rivals either by offering lower prices than competitors for equivalent products or providing unique benefits that more than offset a higher price, should also be adopted to complement other organisational analysis. Porter also suggests that firms should pursue a generic strategy and only concentrate on one of these, instead of trying to pursue all of them risking failure (Porter, 1985:3).

PORTERS 5 FORCES Introduction The model of the Five Competitive Forces was developed by Michael E. Porter in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors in 1980. Since that time it has become an important tool for analyzing an organizations industry structure in strategic processes. Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry. Bargaining Power of Suppliers The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services. Supplier bargaining power is likely to be high when: The market is dominated by a few large suppliers rather than a fragmented source of supply, There are no substitutes for the particular input, The suppliers customers are fragmented, so their bargaining power is low, The switching costs from one supplier to another are high, There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. This threat is especially high when The buying industry has a higher profitability than the supplying industry, Forward integration provides economies of scale for the supplier, The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of products), The buying industry has low barriers to entry. In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization. For Examples, The bargaining power of Microsoft and Intel in more because they are the huge suppliers of software and hardware. Microsoft enforces computer manufacturers to load Windows in their computers and place their logo on laptops, desktops and server machines. Intel on the other hand also demands computer manufacturers to place their logo on machines using Intel processor. Intel and Microsoft enforce their terms and conditions also charging high cost from the computer manufacturing companies. Manufacturer needs to build relationship with the supplier in order to improve the quality and reduce the prices of the product by working together for improvement in processes and reduce time to market by implementing just-in-time inventory. Dell computer known for low cost and best quality computer, laptop and server manufacturer in the industry. The key behind dells success is maintaining good relationship and collaboration with the supplier of computer hardware and software. To gain control or ownership over its suppler, backward integration strategy is adopted by most of the companies. This strategy will help both suppliers and companies to work together for improvement in product quality, reduce cost, reduce time to market and earn good reputation in the industry. Bargaining Power of Customers Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes. Customers bargaining power is likely to be high when They buy large volumes, there is a concentration of buyers, The supplying industry comprises a large number of small operators The supplying industry operates with high fixed costs, The product is undifferentiated and can be replaces by substitutes, Switching to an alternative product is relatively simple and is not related to high costs, Customers have low margins and are price sensitive, Customers could produce the product themselves, The product is not of strategically importance for the customer, The customer knows about the production costs of the product

 There is the possibility for the customer integrating backwards. Consumers are the final users of the product; performance of the companies totally depend upon the consumers. Bargaining power of consumers is more especially when they are huge in number and consumers purchase in large quantity. Rival firms offer discounts, warranty and services to switch the consumer from one brand to another in the same industry. The bargaining power of consumers is also more when products are undifferentiated and widely available. In this case consumer can ask for more discounts, extended warranty and services. As the satisfaction level of consumer goes up more the intensity level of competition increases. Firms should monitor the competitors strategies and also take care of the consumers likes and dislikes by maintaining good relationship with the consumer by implementing CRM processes in the company. For Example, P & G has an online portal to ask the customer about their views, opinions and new ideas about the products of their desire. Threat of New Entrants The competition in an industry will be the higher, the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, prices, customer loyalty) at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry. The threat of new entries will depend on the extent to which there are barriers to entry. These are typically Economies of scale (minimum size requirements for profitable operations), High initial investments and fixed costs, Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets, Brand loyalty of customers Protected intellectual property like patents, licenses etc, Scarcity of important resources, e.g. qualified expert staff Access to raw materials is controlled by existing players, Distribution channels are controlled by existing players, Existing players have close customer relations, e.g. from long-term service contracts, High switching costs for customers Legislation and government action Barrier to entry, however, can include the need to gain economies of scale quickly, strong customer loyalty, strong brand preferences, large capital requirements, lack of adequate distribution channels, government regulatory policies, tariffs, lack of access to raw material, possession of patents, undesirable locations, counterattack by entrenched firms and potential saturation of the market. If existing firms are producing at economies of scale then the new entrants must ensure to make its entry into the market with a large production scale capability to lower its fixed and variable cost per unit in order to compete with the competitors product, otherwise new entrants will face exceeding cost problems. Government policy creates hurdles for new entrants by heavy taxes and interest rates. New firms must get to know the Government regulations and policies before making a entry decision into the country. Despite the numerous barriers to entry, new firms sometimes enter industries with higher-quality products, lower prices and substantial marketing resources. The strategists job, therefore, is to identify potential new firms entering the market, to monitor the new rival firms strategies to counterattack as per need and to capitalize on existing strengths and opportunities. Threat of Substitutes A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products. Similarly to the threat of new entrants, the treat of substitutes is determined by factors like Brand loyalty of customers, Close customer relationships, Switching costs for customers, The relative price for performance of substitutes, Current trends.

Firms mostly monitoring the trends within the industry to track the strategies but competition not only arise within the similar industry but also in different industry. Companies in other industry offer products with similar features and functionality or even better act as substitute for the products. For Instance, the producers of spectacles and contact lenses are facing mounting competitive pressures from growing consumer interest in laser surgery. Newspaper firms are feeling competitive force of the general public turning to cable news channels for late-breaking news and using Internet sources to get information about sports results, stock quotes, and job opportunities. A firm faces intense competition from substitute product producing firms, when the customer cost of switching is lower, substitute products are better in quality and functionality , end users grow more comfortable when using the substitutes. The competitive strength can be determined by market share, sales pattern, producers adding capacity for more production, and rise in profits. Competitive Rivalry between Existing Players This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. Competition between existing players is likely to be high when There are many players of about the same size, Players have similar strategies There is not much differentiation between players and their products, hence, there is much price competition Low market growth rates (growth of a particular company is possible only at the expense of a competitor), Barriers for exit are high (e.g. expensive and highly specialized equipment). Examples, - In the telecommunication industry , firms are lowering their prices in order to increase their consumer call ratio by minimizing their per minute profit margin but this strategy is increasing the overall company revenues. - In the past few years a number of new features were added in the mobiles, now it not only gives the functionality of cell phone but we are also able to take pictures, make videos, watch streaming and use Internet. The firms like Nokia, Siemens, Samsung and other are following each others strategies to minimize the differentiation in the product so customer can easily switch brands. - In the past television companies offered maximum one year warranty but now due to the tough competition in the media market, players as Samsung, LG, Haier, Philips and others enter in the market with their high quality products in order to compete with Sony, thats the reason customers are getting more services in the form of extended warranty periods. - Pepsi and Coca Cola are competing by increasing their advertising and offering new beverages in the market. We discussed about the offline business, when it comes to online business on the Internet , the competition is more fierce, consumer get more control over its purchasing by sitting at home on computer and comparing the similar and substitute products on bases of features and prices. Amazon.com is the best online book selling site, offering a huge library containing millions of books on a variety of subjects. People visit to amazon because they enjoy user friendly design, products, books and search capability of the site but when it come to purchase the product customer move to other site such as buy.com for purchase on discounts. Buy.com CEO says, The Internet is going to shrink retailers margins to the point where they will not survive. - Dell.com offers computers and laptops of high quality at low prices as compared to its competitors. - EBay.com is a site where people like to go to purchase products online at low price. The rivalry among competing firms increases as the number of competitors increases, as competitors grow more equal in size and capability, as demand for the company products decline, products are undifferentiated, product prices decline, consumer brand switching cost is less, number of supplier available for raw material, low price substitute products are available and entry into market is easy due to less constraints. As rivalry among competing firms intensifies, industry profits decline, in some cases to the point where an industry becomes inherently unattractive. Use of the Information from Five Forces Analysis Five Forces Analysis can provide valuable information for three aspects of corporate planning: Statistical Analysis: The Five Forces Analysis allows determining the attractiveness of an industry. It provides insights on profitability. Thus, it supports decisions about entry to or exit from and industry or a market segment. Moreover, the model can be used to compare the impact of competitive forces on the own organization with their impact on competitors.

Competitors may have different options to react to changes in competitive forces from their different resources and competences. This may influence the structure of the whole industry. Dynamical Analysis: In combination with a PEST-Analysis, which reveals drivers for change in an industry, Five Forces Analysis can reveal insights about the potential future attractiveness of the industry. Expected political, economical, sociodemographical and technological changes can influence the five competitive forces and thus have impact on industry structures. Useful tools to determine potential changes of competitive forces are scenarios. Analysis of Options: With the knowledge about intensity and power of competitive forces, organizations can develop options to influence them in a way that improves their own competitive position. The result could be a new strategic direction, e.g. a new positioning, differentiation for competitive products of strategic partnerships Thus, Porters model of Five Competitive Forces allows a systematic and structured analysis of market structure and competitive situation. The model can be applied to particular companies, market segments, industries or regions. Therefore, it is necessary to determine the scope of the market to be analyzed in a first step. Following, all relevant forces for this market are identified and analyzed. Hence, it is not necessary to analyze all elements of all competitive forces with the same depth. The Five Forces Model is based on microeconomics. It takes into account supply and demand, complementary products and substitutes, the relationship between volume of production and cost of production, and market structures like monopoly, oligopoly or perfect competition. Influencing the Power of Five Forces After the analysis of current and potential future state of the five competitive forces, managers can search for options to influence these forces in their organizations interest. Although industry-specific business models will limit options, the own strategy can change the impact of competitive forces on the organization. The objective is to reduce the power of competitive forces. The following figure provides some examples. They are of general nature. Hence, they have to be adjusted to each organizations specific situation. The options of an organization are determined not only by the external market environment, but also by its own internal resources, competences and objectives. Reducing the Bargaining Power of Suppliers Partnering Supply chain management Supply chain training Increase dependency Build knowledge of supplier costs and methods Take over a supplier Reducing the Bargaining Power of Customers Partnering Supply chain management Increase loyalty Increase incentives and value added Move purchase decision away from price Cut put powerful intermediaries (go directly to customer) Reducing the Treat of New Entrants Increase minimum efficient scales of operations Create a marketing / brand image (loyalty as a barrier) Patents, protection of intellectual property Alliances with linked products / services Tie up with suppliers Tie up with distributors Retaliation tactics Reducing the Threat of Substitutes Legal actions

Increase switching costs Alliances Customer surveys to learn about their preferences Enter substitute market and influence from within Accentuate differences (real or perceived)

Reducing the Competitive Rivalry between Existing Players Avoid price competition Differentiate your product Buy out competition Reduce industry over-capacity Focus on different segments Communicate with competitors Critique Porters model of Five Competitive Forces has been subject of much critique. Its main weakness results from the historical context in which it was developed. In the early eighties, cyclical growth characterized the global economy. Thus, primary corporate objectives consisted of profitability and survival. A major prerequisite for achieving these objectives has been optimization of strategy in relation to the external environment. At that time, development in most industries has been fairly stable and predictable, compared with todays dynamics. In general, the meaningfulness of this model is reduced by the following factors: In the economic sense, the model assumes a classic perfect market. The more an industry is regulated, the less meaningful insights the model can deliver. The model is best applicable for analysis of simple market structures. A comprehensive description and analysis of all five forces gets very difficult in complex industries with multiple interrelations, product groups, byproducts and segments. A too narrow focus on particular segments of such industries, however, bears the risk of missing important elements. The model assumes relatively static market structures. This is hardly the case in todays dynamic markets. Technological breakthroughs and dynamic market entrants from start-ups or other industries may completely change business models, entry barriers and relationships along the supply chain within short times. The Five Forces model may have some use for later analysis of the new situation; but it will hardly provide much meaningful advice for preventive actions. The model is based on the idea of competition. It assumes that companies try to achieve competitive advantages over other players in the markets as well as over suppliers or customers. With this focus, it does not really take into consideration strategies like strategic alliances, electronic linking of information systems of all companies along a value chain, virtual enterprise-networks or others. Overall, Porters Five Forces Model has some major limitations in todays market environment. It is not able to take into account new business models and the dynamics of markets. The value of Porters model is more that it enables managers to think about the current situation of their industry in a structured, easy-to-understand way as a starting point for further analysis. Porters Analysis of FMCG Industry Five Forces Analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. For example, Dell would analyze the market for Business Computers i.e. one of its SBUs. Five forces analyses looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry. The threat of entry: Economies of scale e.g. the benefits associated with bulk purchasing. The high or low cost of entry e.g. how much wills it cost for the latest technology? Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up? Cost advantages not related to the size of the company e.g. personal contacts or knowledge that larger companies do not own or learning curve effects. Will competitors retaliate?

Government action e.g. will new laws be introduced that will weaken our competitive position? How important is differentiation? E.g. The Champagne brand cannot be copied. This desensitizes the influence of the environment The power of buyers: This is high where there a few, large players in a market e.g. the large grocery chains. If there are a large number of undifferentiated, small suppliers e.g. small farming businesses supplying the large grocery chains. The cost of switching between suppliers is low e.g. from one fleet supplier of trucks to another. The power of suppliers: The power of suppliers tends to be a reversal of the power of buyers. Where the switching costs are high E.g. switching from one software supplier to another. Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft. There is a possibility of the supplier integrating forward e.g. Brewers buying bars. Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places. The threat of substitutes: Where there is product-for-product substitution e.g. email for fax where there is substitution of need e.g. better toothpaste reduces the need for dentists. Where there is generic substitution (competing for the currency in your pocket) e.g. Video suppliers compete with travel companies. We could always do without e.g. cigarettes. Competitive Rivalry: This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is always seen in the center of the diagram.