Product portfolio analysis can be used to examine products and brands in an organization. Examine the brands of Bidco Oil Company using the Boston Consulting Group (BCG) matrix. INTRODUCTION
The BCG Growth-Share Matrix is a portfolio-planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's. It is based on the observation that a company's business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor, hence the name "growth-share". Market growth serves as a proxy for industry attractiveness, and relative market share serves as a proxy for competitive advantage. The framework assumes that an increase in relative market share will result in an increase in the generation of cash. A second assumption is that a growing market requires investment in assets to increase capacity and therefore results in the consumption of cash. Thus the position of a business on the growth-share matrix provides an indication of its cash generation and its cash consumption. Figure 1.0 Boston Consulting Group Matrix
The four categories are:
1. Question marks (High growth, Low market share)
Question marks (also known as a "problem child") are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. The result is large net cash consumption. A question mark has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share. Characteristics of Question Marks are:
* These products are in growing markets but have low market share * They are new products and buyers are yet to discover them * The main marketing strategy is to get the market to adopt these products * They have high demands and low returns due to low market share * The best way to handle them is to either invest heavily in them to gain market share or to sell them The Bidco Oil products that fall under this category include:
Gold Band Margarine – It new product introduced to counter a product from the competition. Bidco Oil has spent a lot of money advertising it but it is yet to have an impact in the market
Gental – This is a new blue wasshing powder introduced into the country. Buyers are yet to know about it 2. Stars (high growth, high market share)
Stars generate large amounts of cash because of their strong relative market share, but also consume large amounts of cash because of their high growth rate; therefore the cash in each direction approximately nets out. If a star can maintain its large market share, it will become a cash cow when the market growth rate declines. The portfolio of a diversified company always should have stars that will become the next cash cows and ensure future cash generation. Characteristics of Stars are:
* Stars are defined by having high market share in a growing market. * Stars are the leaders in the business but still need a lot of support for promotion and placement. * If market share is kept, Stars are likely to grow into cash cows The Bidco Oil Products that fall under this category include:
Kimbo & Cowboy – Both brands have performed so well in the kenyan market having withstood the test of time and still prefered by many consumers.
3. Cash cows (Low growth, High market share)
As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market growth rate, and thus generate more cash than they consume. Such business units should be "milked", extracting the profits and investing as...