Every businessman eagerly improves their market position and stands out from others. However, before proceeding, one should gather information about competitors to get the full picture. To do this, you need to conduct a competitive analysis, and one way to do it is to employ a strategic group map.
Competitive analysis with strategic group map – table of contents:
- What is a competitive analysis?
- How to perform a competitive analysis?
- What mistakes to avoid?
- What is a map of strategic groups?
- What is the purpose of the strategic group map?
- How to make a map of strategic groups?
- What criteria to choose?
- What to watch out for when mapping your strategic groups?
- Example of a map of strategic groups
- How to interpret the map of strategic groups?
What is a competitive analysis?
We deal with competitive analysis when we undertake a comparison of companies providing similar products or services to ours. That’s the way to find the details others offer as well as their management strategies (production, human resources, marketing, etc.). The recognition of their strengths and the challenges they face will provide a broader perspective and knowledge of our target group.
How to perform a competitive analysis?
- Find companies that resemble yours – both in terms of their offerings, but also in terms of their ways or approaches to solving given problems.
- Gather information about the characteristics of competitors’ products/services and determine what consumer needs they satisfy, e.g., buying a winter jacket satisfies a basic physiological need related to reducing the sensation of cold, buying tickets for a theater performance satisfies a higher-order need, i.e., self-actualization, etc.
- Consider how and in what time it is possible to meet the need at a competitor. Referring to the example above – a clothing brand only conducts stationary sales. For a potential customer, who may live in another locality and not have the time to go to the showroom in person, this may be a reason for not taking advantage of the offer. By noticing this issue and introducing online sales and shipping in your business – your offers become more attractive and increase your competitive advantage.
- Use the information posted on the Internet, social media – description of the offer, range of services or prices, opinions of Internet users will provide valuable knowledge about the position of the competing company, its strengths and weaknesses.
What mistakes to avoid?
- Firstly, when you apply only one method of market position research, you will achieve the most reliable and consistent results by exploiting several research methods, e.g. strategic group map with SWOT analysis or KCS analysis.
- Next, the macroeconomic environment is characterized by a lot of dynamism, so you should constantly check the validity of results and learn from them. Strategic management is about continuous improvement and looking for new solutions.
- Try to avoid drawing hasty conclusions from your analysis, just because it confirmed your assumptions. Make sure that you have collected all the data and that you do not interpret it according to your hypotheses. In addition, it is worthwhile to consult third parties, who may see aspects that you have overlooked.
What is a map of strategic groups?
The map of strategic groups graphically depicts the competitive situation of enterprises operating in a particular segment, with similar offerings, similar development plans (strategic groups).
What is the purpose of the strategic group map?
Wondering if it’s worth your time to bring to bear the above tool in your analysis? Here are the main reasons telling you how your company can benefit:
- Get to know your competition – understanding the weaknesses and qualities of companies competing in the same industry will be the starting stage from which you will introduce better solutions;
- You show competitive advantage – by learning about your rivals’ strategies and comparing them to yours, you can pin down what features differentiate you from the competition;
- You perceive new opportunities – after performing a competitive analysis with the help of a strategic group map, you can assess which areas to focus on to increase the profitability of the company.
How to make a map of strategic groups?
The making of a strategy group map can be included in the following 4 steps:
- Extrapolate criteria to divide companies based on the differences between them;
- Create several proposals for strategic maps, with the pairs of the extracted criteria;
- Indicate the place of each company on the graphic;
- Draw a circle around each strategic group – their size should correspond to the size of the group.
What criteria to choose?
The choice of criteria largely depends on the specific industry of the company in question and what aspect you want to focus on most. For example, these may include:
- assortment diversification;
- territorial coverage;
- distribution channels;
- marketing activities, etc.
What to watch out for when mapping your strategic groups?
- The criteria chosen for plotting the map should not be highly correlated (e.g., quality – price), because companies and groups then arrange themselves diagonally, along a line equidistant from the coordinate axis; such a chart does not show the differentiation of strategies, it is better to place similar criteria together on the coordinate axis as one dimension;
- Make the criteria measurable, or at least choose such continuous features that have a designated point or percentage measures;
- Select the pairs of criteria that strongly differentiate the strategic behavior of companies in a given sector; if a criterion is similarly developed in all rivals, it is not suitable for constructing a map;
- You should aim to build multiple maps for the same sector, as one or two may not reflect the actual relationship between competitors.
Example of a map of strategic groups
To present a sample map, we will focus on a few representatives of the restaurant industry.
Figure 1: Map of strategic groups – restaurant industry
How to interpret the map of strategic groups?
After designing the above map, we can proceed to interpret it and draw some conclusions.
- To find a niche market, examine the grid to take up spots free of other companies. In this case, we should focus on creating a diverse menu, while maintaining a moderate quality of service. The offer could target those consumers who aren’t looking for a unique taste experience, but who expect more options to choose from.
- The conclusion to draw from our illustration makes Whiskey in the Jar safe from competitors like KFC or McDonald’s. It would be more difficult for fast-food bars to raise the quality of their services to a significant degree due to costs, while Whiskey in the Jar could narrow down its dish offerings and continue to maintain a good position in the market.
- Exercising the strategic solutions of Goma Sushi or Whiskey in the Jar may bring about many tweaks to business, increasing even further your competitiveness in the market.
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