*BOSTON CONSULTING GROUP (BCG)MATRIX is developed by “BRUCEHENDERSON “of the BOSTON CONSULTINGGROUP IN THE EARLY 1970’s.According to this technique, businesses orproducts are classified as low or highperformers depending upon their marketgrowth rate and relative market share. 2
The B.C.G Matrix (Boston Box)The Boston Consulting Group developed a 2 x 2 matrix that allows the portfolioof products/SBUs to be positioned on the matrix according to:market growth raterelative market share (relative to the leading competitor)The value of the BCG matrix is that it examines the generation and managementof cash within a business. Relative market share is seen as a predictor of theproducts capacity to generate cash and market growth is seen as the predictor ofthe products need for cash. This suggests that products with high market sharewill achieve high sales, but will need less investment in new brands and shouldhave lower costs due to scale economies. Products in fast growing marketsrequire higher levels of investment than those in slower growing markets.Products in low growth markets with a high market share will generate cash,which can be used to fund other products needing investment.Nb: Cash flow is not the same as profitability.
• are at the introduction stage of the PLC, with high market growth and low market share.Question Marks • They are absorbing cash to fund developments in marketing in attempting to become future stars of the business. • are the future of the organisation with high market share and high market growth.Stars • They are at the growth stage of the PLC but are still absorbing cash to sustain and develop market share • are at the maturity stage of the PLC and have high market share, but market growth is slowing.CASH COW • Marketing expenditure is limited so cash generated to fund other product areas of the business • are at the decline stage of the PLC having both low share and growth in the market.DOG • However, they are capable of generating cash in the short term.
Relative Market Share High Low High Star Question Mark Cash Generated ++++ Cash Generated +Market Growth Cash Needed ---- Cash Used ---- 0 --- Cash Cow Dog Low Cash Generated ++++ Cash Generated + Cash Used - Cash Used - +++ 0 10x 1x 0.1x The BCG Matrix
STARHigh growth , High market share Amul Butter – 86% market share Amul Lite – 80% market share Amul Instant Full Cream Milk Powder- 80% market share Amul Milk – 75% market share Ice Creams -37% market share (HUL-9%, Mother dairy and vadilal -7%)uld be made to hold the market share otherwise the star will become a CASH COW.
* CASH COWSLow growth , High market share*Amul Spray – 65% market sharear*Sagar Tea Coffee Whitener – 40% market share* Processed Cheese -50% market shareocated in an industry that is mature, not growing or declining. 10
BENEFITS• BCG MATRIX is simple and easy to understand.• It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them.• It is used to identify how corporate cash resources can best be used to maximize a company’s future growth and profitability.
* LIMITATIONS• BCG MATRIX uses only two dimensions, Relative market share and market growth rate.• Problems of getting data on market share and market growth.• High market share does not mean profits all the time.• Business with low market share can be profitable too.