This video offers an illustration of strategic group mapping. The purpose of strategic group mapping is to answer the question, who is our competition? And a technique to reveal the different competitive positions that all rivals within an industry are taking is gained through a process called strategic group mapping. The definition of a strategic group is a cluster of firms with very similar competitive and strategic approaches. There's no better definition of a strategic group than that between Coke and Pepsi.
Firms that are in the same strategic group have at least two common competitive characteristics. For example, both companies or all companies within a strategic group may have comparable product lines, and indeed the product line breadth is very similar between Coke and Pepsi. may also sell the product approximately at the same price and quality range and indeed this is true between Coke and Pepsi. Firms in a strategic group usually are going after the same type of buyer with similar product attributes and this is true in the case of Coke and Pepsi especially when examining their marketing and advertising campaigns. And firms that operate within the same group may also cover the same geographic areas.
In the case of Coke and Pepsi, they match each other in almost every country around the world. Here's another example of strategic group mapping, a little more complicated one. Consider the United States restaurant chain industry. If you were to create a strategic group map for the United States restaurant chains, the first step would be to identify two competitive characteristics that differentiate firms from one another.
This is the critical step, the two major characteristics. Now suppose that we say that two characteristics that differentiate firms from each other in the U.S. restaurant chain industry is one of the breadth of menu and also one concerning price. If that's true, then you'll use this to construct a graph plotted on an xy-axis where you have menu ranging from full to limited, and price of offerings ranging from the low end to the high end.
The second step for constructing a strategic group map is to then take the XY graph that you just created and plot all firms in the industry on that XY graph. Now, some of the firms that you see here do not represent the entire industry, but they do represent some of the major players in the U.S. restaurant chain business. Once that's done, you'll then move to the third step, and that is to try to assign firms into a similar space and therefore a similar strategic group. And you can see the full menu offering at the higher end of the price range goes with the companies of Olive Garden, Red Lobster, and Outback Restaurants.
So we could say that these firms are in the same or very similar strategic group. The fourth step is then to take those groups and draw circles around them, making the circles proportionate to the approximate size of that group's respective market share in the total industry. And here, as an example, the largest circle owing to the greatest market share is most likely in the fast food part of that industry.
This is a larger representation of the graphic that you saw on the screen before this. Again, the larger circles owing to the groups with the larger share of market share in the total U.S. restaurant change business. Now, how do you interpret strategic group maps? The closer these strategic groups are on the map, the stronger the cross-group competitive rivalry will be.
For example... when considering McDonald's, who are in one strategic group, to KFC in another, but since they're fairly close to each other, McDonald's would be more concerned with what Kentucky Fried Chicken is doing strategically rather than what the Outback Steakhouse is doing. So, KFC is a much closer rival to McDonald's owing to that its strategic group of KFC is closer to that of McDonald's and firms within the same strategic group are going to be direct competitors and indeed McDonald's competes head-on with Burger King. The last step in this process in interpreting strategic group maps is to look at gaps in this map where there might possibly be new opportunities for business.
And if you got creative with this, you could find some little market segments, possibly to place a new restaurant in the United States in a given state or in a given city. There are places that occupy this strategic group map that are seemingly unfilled. And if you can identify those and. come up with a firm or a product offering that fits into one of these segments, then you might just have a target market that's currently not being served.