Strategic Groups within Industries

STRATEGIC GROUPS A management concept which separates companies within the same industry with similar business models and or a similar strategy combination. Michael Porter: A strategic group is the group of firms in an industry following the same or a similar strategy along the strategic dimensions.

EXAMPLE:

High

Apple RIM HTC

High End

Price

Nokia Sony HP
Middle

TracPhone LG Pantech

Low Low Market Share %

Low End

High

The global mobile phone industry is best defined by overall market share and price based upon product type. The industry can be further defined into three different segments: low-end, middle, and high-end. A low-end phone is cheap in price, normally offered free with a 2 year activation contract, with various network providers, and only contains the basic capabilities of mobile phone technology. A mid-line phone is a set above the low-end. It is normally priced at around the $100 mark with a 2 year contract, and contains some multimedia capabilities (AT&T, 2010). The final segment, high-end is the fastest growing strategic group as demand for smart phones continues to rise. The smart phone market grew by 64% annually worldwide in the 2nd quarter of 2010 on a year-to-year basis reported Canalys, an independent technology focused analyst house.

Two Assumptions No two firms are totally different. No two firms are exactly the same.

Dimensions Use to reflect the variety of strategic combination in an industry. Includes: product and geographic scope, price and quality, degree of vertical integration, type of distribution and so on.

Value of the Concept of Strategic Groups 1. Help firm identify barriers to mobility. Mobility Barriers Factors that deter the movement of firms from one strategic position to another. For example, in the chainsaw industry, the major barriers protecting the high-quality or dealer-oriented group are technology, brand image, and an established network of servicing dealers. 2. Helps a firm identify groups whose competitive position may be marginal or tenuous. One may anticipate that these competitors may exit the industry or try to move into another group. 3. Help chart the future direction of firm strategies. If all strategic groups are heading in the same direction it could indicate high future volatility and intensity of competition. 4. Strategic are helpful in thinking through the implication of each industry trend. Answers the following questions: Is the trend decreasing the viability of a group? If so, in what direction should the strategic group move? Is the trend increasing or decreasing entry barriers in a given group? Will the trend decrease the ability of one group to separate itself from other groups? Strategic Actions to be Taken There are four actions which can be adopted following your strategic group analysis:

Stay Strengthen your position within your strategic group; Move - Move to one of those groups with the best trade-off between profit potential and cost of entry Create Create an entirely new strategic group Leave Leave the industry