Strategic Groups Analysis of Environmental Threats and Opportunities
Identifying groups in an industry can significantly improve the quality of analysis when determining what threats and opportunities a firm might face when those groups are strategic, real, and meaningful. A strategic group is a set of firms that face similar threats and opportunities that are different from the threats and opportunities facing other firms in an industry. The most important concept when analyzing strategic groups is one known as a mobility barrier–a concept analogous to barriers of entry at the industry level. think of strategic groups as similar firms in a given industry that share common threats and opportunities working together to better analyze what they are up against rather than trying to do some on an individual basis. For Nordstrom, Inc., the strategic group of which they are apart of might include other firms like Saks Fifth Ave and Macy’s, and their idea of strategic group analysis might look a little something like this…
Applying the Strategic Groups Concept
The first step in this type of analysis as described in the textbook is to isolate several key mobility barriers that might be operating in an industry. Let’s consider economies of scale and product differentiation. Then you must measure the conduct of firms in the industry with respect to these mobility barriers.
Economies of Scale: Nordstrom and the other firms in this strategic group are able to offset the firm’s costs of production while still providing customers with a large volume of product because the firm’s have fewer private label brands of their own and rely more heavily on selling products manufactured by the brands that they partner with. Brands like Calvin Klein, Gucci, and Free People are responsible for absorbing their own costs of production while Nordstrom keeps costs low by simply choosing to sell those brands in their stores.
Product Differentiation: On the other hand, Nordstrom is able to provide very diverse product differentiation for their customers due to the ability to create economies of scale. Firms in this strategic group offer a vast array of brand selections to their customers, but keep in mind, these firms may not offer the same brands which allow them all to succeed within the over-arching industry.
This concept of strategic groups analysis of environmental threats and opportunities is valuable to firms when studying the evolution of competition over time. Studying the competition allows firms to make strategic choices for the future about whether or not to expand into new markets, establish new partnerships, or create a new product that might be outside of their traditional brand.
Styled Strategy 