What Is a Strategic Group?

A strategic group includes businesses in one industry that operate with similar models. For example, one group might include a number of software providers that charge users to access similar programs from their websites. They sell similar products, offer similar prices, and use similar marketing and service models. Other factors, such as geographic location and branding, can place businesses in the same strategic group. Business managers make use of group analysis to monitor competitor behavior and find opportunities for expansion.

Businesses that are classified in the same strategic group often are competitors. In other words, these businesses likely are competing for the same customer base. Price and quality of their goods and services and demographics of their clients can be similar.

Managers need to monitor competitor behaviors. When a competitor business lowers prices on a product, a manager might also decide to lower prices and alter marketing strategies. Charts illustrating strategic groups can act as valuable tools for a manager who wants to know with whom his business is competing.

Strategic group analysis also can help managers discover opportunities for expansion. By understanding which services are provided to which demographics, a manager can discover unsaturated markets. This can provide guidance for business models and strategies regarding pricing and marketing.

Group analysis also allows managers to discover when new companies are entering the groups with which they are aligned. When a new business enters a market, a manager usually has to renew marketing campaigns. He or she can introduce a new product or new pricing models.

For many managers, strategic group analysis is an essential part of strategic management processes. Important strategic questions, such as whether a move is feasible or whether demand exists for a product, can be answered with the help of this kind of analysis.

Some business analysts believe that a manager's understanding of his or her status in a strategic group can allow for more effective long term strategy. At the same time, many experts believe that groups can act as barriers for new businesses that want to expand. Profitability tends to be low for new businesses in groups that already are established.

Ideally, a new business might want to enter an industry by offering an original grouping of characteristics. A business could feature an uncommon combination of price, quality, and service model. This could enable a business to avoid being overshadowed by more established businesses in a similar group.