Strategic Groups (Chapter 4)

                A strategic group is a defined as a set of firms that face similar threats and opportunities that are different from the threats and opportunities facing other firms in an industry.   (Barney, 106)

Strategic Group analysis can be used when there is ambiguity about the limits of an industry and even differences in the structure of threats and opportunities that similar firms face.   Lululemon is a good example of an industry where strategic group analysis can be important. 

First let’s identify an industry .  Here we are discussing the athletic wear/athleisure wear.    We have discussed in past blogs that industry defines items that individuals wear when working out or just running errands around the town.   Basically, it has become cool to wear yoga pants as real pants and many humorous facebook posts and you tube videos are dedicated to this trend. 

Now let’s focus on all the competitors:   Lululemon often competes with Nike, Reebok, Under Armour, Lucy and Athleta.

Using Strategic Group Analysis,  I might define the following:

Nike, Reebok, Under Armor are  in Strategic Group 1

Lulu, Lucy and Athleta, Fabletics are in  Strategic Group 2.

The reason for this differentiation is due to the isolation of mobility barriers (106) which is similar to identifying barriers to entry at the industry level.   

Here, I might look at the following: 

First mover status = Lulu and Lucy and Athleta were all in the printed yoga pant space first

Industry Status = Nike, Reebok, UA were all established sports brands with broad product offerings
Technology/R&D = Fabric –Lulu was the first set of unique material used to make a better pair of yoga/running pants

Gender Focus -  Lulu, Lucy, Athleta, Fabletics began as all women only (although Lulu now has a men’s line) 

Price = Lucy,  Lulu, Athleta all price their pants between $60-100 while Nike, UA, Fabletics and Reebok all price under $50 traditionally. 

After isolating these barriers, I might build out a similarity matrix by doing simple correlation analysis, comparing the number of the firms in the industry, in my example there are  7 firms, so it would be a 7 x 7 matrix.  Each element on this matrix (I, J) would be the correlation between the vector of measures of conduct for firm (I), with the vector of measures of conduct for firm (J), effectively comparing firm behavior.    Each axis would represent firm conduct in the industry, above First mover status, Technology/RD, Gender Focus, Price.    In this matrix, it would be likely that I could see firms facing similar threats and opportunities clustered together on the same axis.  My analysis allows me to describe how competition effects and evolves across and within strategic groups in the athleisure wear  industry.  The limitation though is that since probability theory is not associated with cluster analysis it can be challenging if not impossible to identify if a strategy group defined through cluster analysis is statistically significant.  Therefore, the best use of this tool is more for gaining a deeper understanding of the level of threats and opportunities that a firm faces.