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Businesses that sell similar products or services to the same segment of the population are in a strategic group. For example, a fine dining restaurant and a fast food restaurant are both restaurants, but the businesses would be in different strategic groups because they typically do not have the same customers. Similarly, a fashion boutique and a fine dining restaurant serve the same clientele but are in different strategic groups because the businesses offer different products. The examination of businesses that function within the same strategic group is called strategic group analysis.
This type of analysis is often discussed in conjunction with market focus. Market focus splits the consumer population into market segments that share characteristics such as education level, income, age and gender. Companies research the general preferences of market segments and then use those preferences to gear products and services toward specific market segments that are served by strategic groups.
The goals of strategic group analysis vary depending on several strategic group characteristics, including the size of the market, the diversity of products offered, the geographical proximity of the competing companies, and where the products are sold. Branding, marketing, quality, and price also are factors that must be considered. For example, a company that serves consumers who value low prices might conduct an analysis to determine where competitors’ products fall on the low-price-versus-quality scale. The results of this group analysis might help the company determine how to price products and set quality control.
A company might use this analytical tool to identify competitors and determine how businesses within the group compete. Corporations that launch a new product might conduct an analysis to determine how to compete when entering the market. Creating a map of which businesses serve each market segment helps analysts discover any markets that are under-served or not served at all by the existing strategic groups.
Product positioning and differentiation are two strategic marketing techniques that benefit from strategic group analysis. Positioning means ensuring that a product occupies a unique place in the consumer’s mind, and differentiation means making a product seem different from competing products. In both cases, having a competitive frame of reference can help make a product seem uniquely better than other products in the same strategic group.
In doing strategic group analysis, it is important to remember that, just because there may be several competitors in one area, that does not mean a similar business or product may not be successful.
In large part, what works or what sells depends on the product itself.
For example, fast food restaurants and liquor stores will always have customers, no matter how many are in one town.
In these sectors, the key is brand loyalty, much like in automobile sales.
Beer will sell everywhere, but well-known brands will sell better in some areas that craft beers or micro brews.