May 2018 Q6 b.
One of the criticisms levelled against the five competitive forces model is that it is static – i.e. it does not focus on the dynamic nature of the business environment. Thus, two other concepts that are proposed to deal with competition dynamics are the concepts of strategic group analysis and the cycle of competition.
Required:
Explain the concept of strategic group analysis and identify THREE examples of common strategic characteristics that define a strategic space. (6 marks)
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Strategic group analysis is a competitive analytical tool used in strategic management to group firms within an industry into various sub-groups that exhibit similar strategic characteristics and compete on similar bases. Strategic group analysis enables a firm to identify its competitive arena and, thus, assist managers to identify the firm’s closest and most influencing competitive rivals. The analytical tool enables organisations to overcome the limitation associated with the five forces analysis, which deals with the competitive environment in broad industry-wide terms.
The strategic space pertaining to a strategic group is defined by two or three common strategic characteristics. Examples of strategic characteristics that define a strategic group are:
- Product diversity
- Geographical coverage
- Extent of branding
- Pricing policy
- Product quality
- Distribution method
- Target market segment