A strategic group analysis looks at the positions of the various players within a competitive market. It will examine the underlying factors which help to determine the profitability of a company. This analysis will also account for the competitive dynamics which are part of the overall industry.
Strategic groups can be created to examine a wide variety of issues that may need to be addressed. Common reasons to develop a group involve looking at brand identification issues, cost position, channel selection, and operating leverage. Each dimension that is available within an industry or competitive relationship holds the potential of having a strategic group created for it.
Many times, groups are differentiated based on how they compete and where they compete within the industry.
Here are the advantages and disadvantages to consider for strategic group analysis.
List of the Advantages of Strategic Group Analysis
1. It allows for the strategic shifts and dynamics of an industry to be assessed.
The business world is always evolving. Companies that stay in their comfort zone and stop embracing innovation are the ones who will eventually fail. A strategic group analysis allows an organization to begin assessing their industry and the various marketplaces where they are active. Shifts in thinking and the dynamics of solving problems enable the company to identify new pain points, let old pain points go, and promote a better value statement that encourages consumer protection.
2. It defines the nearest competitors of the company involved.
If a company has a great product, then competitors in the industry will attempt to meet or exceed the value proposition that is offered. Organizations use strategic group analysis to identify their closest competitors, which allows them to stay at the head of the class. They monitor what the competition is doing in the marketplace and what they are developing. This gives them the information they need to be proactive with their core demographics to maintain their base of customers.
3. It helps to evaluate the differences in competitive strategy that are in the marketplace.
Although it is possible to copy a competitive strategy from a competitor, true industry leaders stand on their own with a strategy that meets the needs of their core demographics. With a strategic group analysis, they can see what is working for the competition and what is not working. This information can be used to examine or test what is working with their own competitive strategy. From there, it becomes possible to improve the value statements being offered because the organization has already seen how people react to the work of the competition.
4. It provides help in determining potential strategic moves of competitors in the market.
It would be fair to say that the world of business is much like a game of chess. The best chance to win comes from an ability to predict what the competition will create 2-4 moves from now. With a strategic group analysis, it becomes possible to look at the history of decision-making for a competitor. That information can then predict what the next moves of the competition will be, allowing the organization to be proactive in their response to such a move.
5. It allows an organization to understand what will determine profitability in the market.
Some markets are highly profitable. Some are not. What separates the two extremes is an understanding of how each marketplace determines profitability. A strategic group analysis will look at the information and metrics that each market provides. It will then look at the suite of goods or services that are being offered to that market. When pain points can be addressed for consumers, profitability is created, and this process allows the company to predict how much is present.
List of the Disadvantages of Strategic Group Analysis
1. It is useful only when the group thoroughly understands the market.
Imagine a company that sells a cream which relieves pain. In the strategic group analysis, the company misses the fact that the consumers in their market want to alleviate pain, but with therapy patches, not cream-based products. How successful would the company be in this market? There must be an understanding of what interests each market to have a strategic group analysis be useful. Missing one data point can be enough to turn a successful venture into one that is unsuccessful.
2. It must be able to identify mobility barriers to enter or exit the market.
A strategic group analysis must also identify what it takes for a company to enter the market in the first place. Every market has some type of barrier to entry. If those barriers cannot be identified, then the maximum potential of the company in that marketplace will never be achieved. The analysis must also look at how a company can exit the market and what barriers might exist there as well. Most companies do the first half of the equation, but then fail to look at an exit strategy.
3. It requires the group to make assumptions about competitor goals and strategies.
If you want to know what the competition is doing, then you must make assumptions about their goals and strategies. Most competitors are not going to outline their goals for profitability, even if you ask them for this information. That means a strategic group analysis is based more on assumptions than fact. Because assumptions are being made, there is always an element of risk involved with this process.
4. It often requires trial and error before useful dimensions can be examined.
Strategic group analysis is useful for identifying potential opportunities which may exist in a marketplace. It does not create metrics, however, because it is not responsible for the implementation of a strategy. Once the analysis is complete, companies must do some experimentation to determine how useful the dimensions will be for each market. Even when there are opportunities present, they may not equate to profitable opportunities. That is why you see businesses testing strategies with a limited sample of a demographic before jumping into the entire market.
5. It creates useless information unless there is validity to the assumptions that were made.
If a strategic group analysis reaches a conclusion based on the assumption that turns out to be incorrect, then everyone’s time was wasted. There is no validity to the information created by a strategic group analysis unless it is accurate.
The advantages and disadvantages of a strategic group analysis are based on an attempt to discover how and where competition is happening in the market. When this information can be obtained, then it becomes possible to differentiate. That possibility exists, however, only when the data used is accurate.
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