A strategic group consists of those rival firms with similar competitive approaches and positions in the market. Companies in the same strategic group can resemble one another in any of the several ways. An industry contains only one strategic group when all sellers pursue essentially identical strategies and have comparable market positions.
The steps for constructing a strategic group map and deciding which firms belong in which strategic group are as follows:
♦ Identify the competitive characteristics that differentiate firms in the industry. The typical variables are price/quality range (high, medium, low); geographic coverage (local, regional, national, global); degree of vertical integration (none, partial, full); product-line breadth (wide, narrow); use of distribution channels (one, some, all); and degree of service offered (no-frills, limited, full).
♦ Plot the firms on a two-variable map using pairs of these differentiating characteristics.
♦ Assign firms that fall in about the same strategy space to the same strategic group.
♦ Draw circles around each strategic group making the circles proportional to the size of the group's respective share of total industry sales revenues.