Strategic group

Firms in the same industry are not all really competing with each other. Strategic groups explain who competes with whom.

A strategic group is a set of firms within an industry that follow similar strategies along the dimensions that matter, such as price, quality, breadth of range, distribution, or degree of integration. Members of a group compete most directly with one another and far less with firms pursuing very different approaches in the same industry.

Why the industry is the wrong unit

Treating a whole industry as one competitive arena is usually too coarse. In carmaking, a luxury marque and a budget manufacturer nominally share an industry but barely compete; each contends mainly with the handful of rivals in its own group. Analysing competition at the level of the strategic group, rather than the industry, gives a truer picture of who actually constrains whom.

Mobility barriers

What keeps the groups distinct are mobility barriers: the obstacles a firm faces in moving from one group to another. The capital, brand, and capabilities needed to shift from budget to luxury are precisely what protect the luxury group from invasion. Mobility barriers are to groups what entry barriers are to industries, and they help explain why profitability differs persistently between groups in the same sector.

Using the map

Mapping strategic groups reveals several things at once: who the real rivals are, which positions are crowded and which are open, and where a firm might move if it could overcome the relevant barriers. An empty space on the map can signal either an opportunity or a graveyard that earlier firms learned to avoid.

The concept has fuzzy edges, since the choice of dimensions shapes the map, and groups blur as strategies converge. But as a corrective to the lazy habit of comparing a firm against its entire industry, the strategic group is a sharper lens. It asks the more precise question: among the firms playing roughly your game, how do you intend to win?