The competition within each strategic group is
a. more intense than is the competition between strategic groups.
b. less intense than is the competition between strategic groups.
c. typically very low.
d. an unknown factor in the analysis of competitive practices within a firm’s strategic group.
The Correct Answer and Explanation is:
Correct Answer: a. more intense than is the competition between strategic groups.
Explanation:
Strategic groups are clusters of firms within an industry that have similar business models or strategies. These similarities may be in terms of product quality, pricing strategies, distribution channels, level of vertical integration, or geographic coverage. For example, in the automotive industry, one strategic group might consist of luxury car manufacturers like BMW and Mercedes-Benz, while another includes economy car producers like Hyundai and Kia.
Competition is more intense within each strategic group because the firms are targeting similar customer segments, offering comparable products or services, and utilizing similar competitive tactics. As a result, the firms within a strategic group are direct rivals, often competing head-to-head for market share. Their actions—such as pricing changes, promotional strategies, or new product introductions—have a significant and immediate impact on one another, prompting swift competitive responses.
This intense rivalry is often driven by high strategic similarity, which increases the likelihood of firms perceiving each other as direct threats. Since they operate under comparable cost structures and serve similar buyer needs, the basis for differentiation is limited, escalating the pressure to outperform peers.
In contrast, competition between strategic groups is usually less intense, as different groups serve distinct segments of the market or adopt different strategic approaches. For instance, a budget airline does not directly compete with a premium international carrier; each targets different customer needs and uses different service models.
Understanding strategic groups is crucial for industry analysis and strategic planning. Firms can identify their closest competitors, anticipate their actions, and benchmark performance. It also helps managers recognize potential mobility barriers—factors that prevent movement from one strategic group to another—and assess how changes in strategy might reposition the firm within the competitive landscape.
