2. BCG ( BOSTON CONSULTING GROUP)
MATRIX
Matrix was created by Bruce D. Henderson for the
Boston Consulting Group in 1970 to help analyze
their product line.
This helps the company allocate resources and is
used as an analytical tool in brand marketing, product
management, strategic management, and portfolio
analysis.
3. The BCG matrix is based on the product life cycle theory
that can be used to determine what priorities should be
given in the product portfolio of a business. To ensure
long term creation, a company should have a portfolio
that contains both high-growth products in need of cash
inputs and low-growth products that generate a lot of
cash.
It has 2 dimensions : market share and market growth.
The basic idea behind it is that the bigger the market
share a product has or the faster the product market
grows the better it is for the company.
4. RELATIVE MARKET SHARE
Market share is the percentage of the total market that is
being serviced by our company measured either in the
terms of revenue or in unit terms.
The selection of the relative market share metric was
based upon its relationship to the experience curve.
Another reason for choosing relative market share,
rather than just profits, is that it carries more
information than just cash flow. It shows where the
brand is positioned against its main competitors, and
indicates where it might be likely to go in the future.
5. MARKET GROWTH RATE
Market growth is used as a measure of a
market’s attractiveness.
Markets experiencing high growth are ones
where the total market share available is
expanding and there is plenty of opportunities
for everyone to make money.
9. Placing products in BCG matrix results in four
categories in a portfolio of company:
Stars
Cash cows
Dogs
Question marks
10.
11. QUESTION MARKS
Also known as problem children are
businesses operating with a low market share
in a high growth market.
They are a starting point for most businesses.
They have a potential to gain market share
and become stars, and eventually cash cows
when market growth slows. If question marks
do not succeed in becoming a market leader,
then after perhaps years of cash
consumption, they will degenerate into dogs
when market growth declines.
Question marks must be analyzed carefully
in order to determine whether they are worth
the investment required to grow market
share.
12. STARS
Stars are units with a high market share in a
fast-growing industry.
Stars require high funding to fight
competitions and maintain a growth rate.
It leads to high amount of cash consumption
and cash generation.
When industry growth slows, if they remain a
niche leader or are amongst market leaders
they have been able to maintain their
category leadership stars become cash cows,
else they become dogs due to low relative
market share.
Attempts should be made to hold the maket
share otherwise the star will become a cash
cow.
13. CASH COWS
Cash cows is where a company has high
market share in a slow-growing industry.
They are foundation of the company and often
the stars of the yesterday.
These units typically generate cash in excess
of the amount of cash needed to maintain the
business.
They are regarded as staid and boring, in a
"mature" market, yet corporations value
owning them due to their cash generating
qualities.
They are to be "milked" continuously with as
little investment as possible, since such
investment would be wasted in an industry
with low growth.
14. DOGS
Dogs, more charitably called pets, are units
with low market share in a mature, slow-
growing industry.
These units typically "break even", generating
barely enough cash to maintain the business's
market share.
Though owning a break-even unit provides the
social benefit of providing jobs and possible
synergies that assist other business units,
from an accounting point of view such a unit is
worthless, not generating cash for the
company.
They depress a profitable company's return on
assets
ratio, used by many investors to judge how
well a company is being managed. Dogs, it is
thought, should be sold off.
15. As a particular industry matures and its growth slows, all business
units become either cash cows or dogs. The natural cycle for most
business units is that they start as question marks, then turn
into stars. Eventually the market stops growing thus the business
unit becomes a cash cow. At the end of the cycle the cash cow turns
into a dog.
As BCG stated in 1970:
Only a diversified company with a balanced portfolio can use its
strengths to truly capitalize on its growth opportunities. The
balanced portfolio has:
stars whose high share and high growth assure the future;
cash cows that supply funds for that future growth; and
question marks to be converted into stars with the added funds.
16. WHY BCG MATRIX ?
To assess
Profile of product/ business
Cash demands of products
The development cycle of product
Resource allocation and disvestment decision
17. BENEFITS OF BCG MATRIX
The BCG-Matrix is helpful for managers to evaluate
balance in the companies' current portfolio of Stars,
Cash Cows, Question Marks and Dogs.
BCG-Matrix is applicable to large companies that seek
volume and experience effects.
The model is simple and easy to understand.
It provides a base for management to decide and prepare
for future actions.
If a company is able to use the experience curve to its
advantage, it should be able to manufacture and sell
new products at a price that is low enough to get early
market share leadership. Once it becomes a star, it is
destined to be profitable.
18. LIMITATIONS OF BCG MATRIX
It neglects the effects of synergies between business units.
High market share is not the only success factor.
Market growth is not the only indicator for attractiveness of a
market.
Sometimes Dogs can earn even more cash as Cash Cows.
The problems of getting data on the market share and market
growth.
There is no clear definition of what constitutes a “market”.
A high market share does not necessarily lead to profitability
all the time.
The model uses only two dimensions – market share and
growth rate. This may tempt management to emphasize a
particular product, or todivest prematurely.
A business with a low market share can be profitable too.
The model neglects small competitors that have fast growing
market shares.
