An Application of Clustering for Strategic Group Analysis

Taxonomies, factor analysis, and clustering are useful tools for examining the structure of competitors within an industry and determining strategic groupings. Strategic group analysis enables managers to: 1. evaluate the attractiveness of market opportunities for their organization, 2. assess their abilities to take advantage of industry changes, and 3. determine their long-term chances for profitability within the industry. Various techniques for operationalizing estimates of strategic groups are compared. The use of cluster analysis as a tool in strategic group investigation is illustrated using the clustering of 92 retail establishments as an example. Findings of the study reveal diversities that might enable the firms to avoid hostile competition when expanding into each other's markets. An understanding of the key differences between converging strategic groups may aid managers in developing strategic policies.