BCG matrix

BCG Matrix BY SAYALI WARE 111 YOGITA ZOPE 119 NIRAJ TRIVEDI 103 SHASHANK SHAH 106 DHERAJ KANCHAN 77 RAHUL SRIVASTAV 99

CONTENTS

Emergence of BCG Matrix

Approaches of BCG Matrix

Components of BCG Matrix

Applications of BCG Matrix

Advantages & Limitations of BCG

Conclusion

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EMERGENCE OF PORTFOLIO MATRICES

During the 1979’s and early 1980’s, several leading consulting firms developed the concept of portfolio matrices to achieve a better understanding of the competitive position of an overall portfolio of businesses, to suggest alternatives for each of the businesses, and to identify priorities for the allocation of resources.

PURPOSE OF PORTFOLIO MATRICES

The key purpose of portfolio models was to assist a firm in achieving a balanced portfolio of business.

This consisted of businesses whose profitability, growth and cash flow characteristics would complement each other.

Imbalance, for example, could be caused either by excessive cash generation with too few growth opportunities or by insufficient cash generation to fund the growth requirements.

THE BCG MATRIX

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A means of analysing the product portfolio and informing decision makers about possible marketing strategies makers about possible marketing strategies

Growth-share matrix is a business tool, which uses relative market share and industry growth rate

factors to evaluate the potential of business brand portfolio and suggest further investment

strategies.

Links growth rate, market share and cash flow

Developed by the Boston Consulting Group – a business strategy and marketing consultancy in 1968

EMERGENCE OF BCG(GROWTH SHARE) MATRIX

The growth-share matrix viewed companies as a portfolio of businesses and was intended to help senior managers identify the cash flow requirements of different businesses and take resource allocation decisions about them

When using the growth-share matrix, businesses are grouped in Strategic Business Units (SBUs) and are mapped on a matrix along two dimensions: industry growth rate and relative market share. The SBUs are then divided into ‘Stars’, ‘Question Marks’, ‘Cash Cows’ and ‘Dogs’

High share Low share

Low growth

High growth

Stars Question marks

Cash Cow Dog

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Conclusion

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BCG MATRIX

Boston Consulting Group (BCG) Matrix is a four

celled matrix developed by BCG, USA.

The Boston Consulting Group (BCG) growth/share

matrix in among the best known of these

approaches.

In the BCG approach, each of the firm’s Strategic

Business Units (SBUs) in plotted on a two-

dimensional grid in which the axes are relative

market share and industry growth rate.

The grid is broken into two quadrants. It is a most

renowned corporate portfolio analysis tool.

RELATIVE MARKET SHARE

Relative market share indicates cash generation.

Higher the market share, the cash generated will be more.

According to the BCG Matrix, it is assumed that these earnings will grow faster the higher the share.

The question of what is a ‘high market share’ is a debate.

The best evidence is that the most stable position is for the brand leader to have a share double that of the second brand, and triple that of the third.

By choosing the relative market share, it shows where the brand is positioned against its competitors.

It indicates about the future of the product/brand as well.

MARKET GROWTH RATE

Organisations strive for rapid growth in the competitive market.

They require huge investment for this.

The theory behind the matrix assumes, therefore, that a higher

growth rate is indicative of accompanying demands on

investment.

The cut-off point is chosen as 10% per annum and the growth

beyond this point is considered as significant.

Market Growth Rate =

(Current market size - Original market size) / (Original market size)

COMPONENTS OF BCG MATRIX

According to the BCG Matrix, business could be divided into high or low depending

upon their industry growth and relative market share.

Relative Market Share = SBU Sales this year leading competitors sales this year.

Market Growth Rate = Industry sales this year - Industry Sales last year.

The analysis requires that both measures be calculated for each SBU. The dimension of business strength, relative market share, will measure comparative advantage indicated by market dominance.

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Conclusion

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COMPONENTS OF BCG MATRIX

Each of the four quadrants of the grid has different implication for the SBUs that fall into the category

Stars

?Question

marks

Dogs

SBUs competing in the high-growth industries

Relatively high market shares.

Long-term growth potential

Substantial investment funding

SBUs competing in high-growth industries.

Relatively weak market shares.

Cash flow required to enhance their competitive positions.

SBUs with weak market shares in low-growth industries.

They have weak position and limited potential.

Analysts recommend that they be divested.

SBUs with high market shares in low-growth industries.

Limited long-run potential.

Source of current cash flows to fund investments in “stars” and “question marks”

BCG MATRIX APPLICATION

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Relative position (Market Share)

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The BCG Matrix method can

help to understand a frequently

made strategy mistake:

Having a one size fits all

strategy approach, such as a

generic growth target or a

generic return on capital for an

entire corporation.

Cash Cows Business Units will

reach their profit target easily.

Their management have an

easy job.

Even worse, they are often

allowed to reinvest substantial

cash amounts in their mature

businesses

Dogs Business Units are

fighting an impossible battle

and, even worse, now and

then investments are made.

These are hopeless attempts

to "turn the business around”

As a result all Question

Marks and Stars receive

only mediocre investment

funds.

In this way, they can never

become Cash Cows.

Inadequate invested sums

of money are a waste of

money.

Either these SBUs should

receive enough investment

funds to enable them to

achieve a real market

dominance and become Cash

Cows (or Stars), or otherwise

companies are advised to

disinvest.

They can then try to get any

possible cash from the

Question Marks that were not

selected


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Invest if needed to create cash cow Select a

fewDivest the others

Liquidate

BCG MATRIX WITH CASH FLOW

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Stars Question marks

Cash flows Dogs

Cash flowCash flow


Companies that followed these recommendations blindly made important strategic errors

Even ‘Cash cows’ may require substantial investment to keep competitive

The Motor Vehicle industry is indeed low-growth and relatively consolidated, but it is also characterised by cut-throat competition.

If the leading competitors reduce their investment in new vehicle designs, and product or process innovations in general, they are likely to be quickly overtaken by more capable competitors.

Lastly, portfolio planning techniques tend to view businesses as free-stranding entities, and this ignore any potential or actual synergies between them.

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Conclusion

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APPLICATION OF BCG WITH PLC

12 3

Product life cycle, suggests that most product portfolios will categories will progress through different stages of rates of growth – from introduction to growth to maturity and then to eventual decline.

The concept of the product life cycle is fundamental to

understanding how product portfolios will evolve over time

through the quadrants of the BCG matrix.

4

Question marks businesses correspond to

the introduction stage of the PLC

In the introduction stage ， the firm seeks to

build market share rapidly, build product

awareness and develop a market for the

product.

Stars businesses correspond to the

growth stage of the PLC.

In the growth stage, the firm seeks to

build brand

(1) Starts businesses

correspond to the growth stage of

the product life cycle. preference

and increase market share.

Cash cows businesses correspond to

the maturity stage of the PLC.In the maturity stage,

the market reaches saturation.

Dogs businesses in this category do not produce ， or

consumer ， much cash.

BCG MATRIX

Question Mark - Apple TV makes a bit of money, but it’s not reaching it’s potential. If Apple can solve a few ecosystem problems, they could really own the TV space. There are tons of rumours of an Apple TV product that might just maybe dominate like the iPod/iPhone/i Pad.

Rising Star - The iPhone and i Pad are rising stars. They can’t make enough of them. These products are so successful that their growth potential is really unknown.

Cash Cows - The Mac Books are the portables of choice right now. The all-in-one iMac is in that cash cow place. They make a lot of them, but computing is quickly shifting to portable and mobile so they are also in the dog section.

Dogs - The big multi-part desktop is fading away. Hard drive based iPods peaked a while ago as well and there are just so may competitors that can create a simple product such as an i pod now. Apple's Macs could be considered in the dog category as Apple is not a market leader in this market segment as there competitors have the desktop market in a monopolymonopoly.


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STUDY OF ITC

REVENUES Growth-Share

MatrixY/E March (Rs cr) Base Year

Current Year

% Growth

% Contrib.

% Market Share Growth Share

FMCG-Cigarettes 13,825.6 12,833.7 7.7 58.41 70% Low HighFMCG-Others 2,511.1 1,689.5 48.6 10.61 16% High LowHotels 1,100.2 985.7 11.6 4.65 90 Hotels High High

Agri Business 3,868.4 3,501.3 10.5 16.342nd Largest

Exporter High HighPaperboards & Packaging 2,364.3 2,100.1 12.6 9.99 1st in Asia High HighITC Infotech - - - - - Low Low

BCG MATRIX OF ITC

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Question marks

Cash flows Dogs

• Agri Business• Hotels• Paperboards &

Packaging

• FMCG-Foods

• FMCG-Cigarettes

• ITC Infotech

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Conclusion

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ADVANTAGES OF BCG MATRIX

• BCG Matrix is simple and easy to understand.

• It helps you to quickly and simply screen the opportunities open to you.

• It is used to identify how corporate cash resources can best be used to maximise a company’s future growth and profitability.

• BCG method is applicable to large companies that seek volume and experience effects.

• It provides a base for management to decide and prepare for future actions.

LIMITATIONS OF BCG MATRIX

• BCG matrix uses only two dimensions: Relative Market Share and Market Growth Rate.

• High market share does not mean profits all the time.

• Business with low market share can be profitable too.

• Market growth is not the only indicator for attractiveness of a market.

• There is no clear definition of what constitutes a “market”.

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Conclusion?

CONCLUSION

Though BCG matrix has its limitation it is one of the most famous & simple portfolio planning matrix, used by large companies having multi-products.

BCG focuses on the product portfolio as the major component for companies to thrive for market capitalisation.

BCG matrix

Marketing

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