The ‘five forces’ analysis has examined the overall industry and is a starting point in assessing a company’s competitive position. This is likely to be a rather broad definition of an industry and contains a number of companies that would not be direct competitors. For instance. Toyota is likely to have a number of natural direct competitors but TVR is not likely to be one of them, although both companies are in the car industry. Toyota’s scale is global and it manufactures cars across the full range, TVR is a specialist,low-volume prestige sports car manufacturer. Companies that are direct competitors in terms of products and customer profiles are seen as being in a strategic group. The car industry would be made up of a number of strategic groups.
Strategic groups are made up of organizations within the same industry that are pursuing equivalent strategies, targeting groups of customers that have similar profiles. TVR’s strategic group is likely to contain Ferrari,Lotus, Lamborghini, Aston Martin etc. All these companies are following similar strategies and facing similar strategic questions. They are also aiming at very similar market segments. In the airline industry there are at least three strategic groups. One group consists of airlines with regional operations who offer scheduled flights and compete on cost. There is a group of major airlines who have global operations and offer scheduled flights with quality environments and service. The third group offer charter services to a range of holiday destinations .
There are a range of attributes that can be used to identify strategic groups. Some examples are:
For many companies, analyzing every competitor in its generic industry would be a difficult task in terms of management time and company resources. Defining an organization’s strategic group allows a company to concentrate its analysis on its direct competitors and to examine them in more detail.
Strategic groups in the airline industry
Tools which are used to analyse the internal environment, such as the value chain, can of course be used to analyses competitors. For each competitor in their strategic group an organization needs, as far as possible,to establish the information discussed in the following subsections.
A competitor’s objectives can be identified by analyzing three important factors:
Competitor’s current and past strategies
There are three areas that should be explored in order to establish a competitor’s current activities:
An analysis of a competitor’s assets and competencies allows a judgment to be made about how well equipped they are to address the market, given the dynamics in the industry and the trends in the external environment. In order to evaluate a competitor’s potential challenge to an organization a number of areas need to be examined:
Competitor’s future strategies and reactions
One of the aims of the competitor analysis so far has been together information on rivals to establish their likely future strategy. It is equally important to evaluate a competitor’s likely reactions to any strategic moves the organization might instigate. The reactions of organizations can be categorized into four types of response:
Problems in identifying competitors
Analyzing members of a strategic group provides crucial information on which to base strategic decisions. However, there are risks in the process of identifying an organization’s competitors and a number of errors should be avoided:
The competitive analysis has allowed the organization to establish its relative position versus its competitors on a range of important criteria. However, the organization has to judge itself and its competitors against the market it is operating within. At this stage in the external analysis it is useful to establish a range of information about the market. The customer and market segmentation would also be considered in a market analysis and this will be explored in detail later.
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