The Bcg Matrix

Topics: Strategic management, Marketing, Growth-share matrix Pages: 7 (1688 words) Published: October 11, 2010
BCG Matrix
Opportunity - Threat Analysis

Submitted to: Professor Clyde
By : Parth Mithani
Roll No. 60
Alkesh Dinesh Modi Institute for Financial & Management Studies.

1) The BCG Matrix

The BCG / Growth-Share matrix is a model developed by the Boston Consultancy Group in the early 1970’s. It is a well known tool for a marketing manager. It is based on the observation that a company’s business units can be classified into four main categories based on combinations of market growth and market share, hence the name growth-share matrix. Market growth represents the industry attractive attractiveness, and market share stands for competitive advantage. This helps the marketing manager allocate resources and is used as an analytical tool in brand marketing, product management, strategic management etc. The basic idea behind the BCG matrix is that if a product has a bigger market share, or if the product's market grows faster, it is better for the company. The 4 segments of the BCG matrix:₨

Market Growth
Market Share

1) Dogs:
These are products with a low growth and a low share of the market. Dogs are the cash traps. They do not generate cash for the company. A marketing manager should get rid of these products. 2) Cash Cows:

These are products with a high market share and low growth rate. They are often the stars of yesterday and they are the foundation of a company. They extract the profits by investing as little cash as possible. So a marketing manager’s role would be to keep such products in the portfolio for the time being. 3) Problem Children:

These are products with a low share of a high growth market. They consume resources and generate little in return. Most businesses start of as problem children. They absorb most money as you attempt to increase market share. Problem children have potential to become a star and eventually a cash cow but can also become a dog. 4) Stars:

These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. Stars are leaders in business. They also require heavy investment, to maintain its large market share. It leads to large amount of cash consumption and cash generation. A marketing manager should attempt to hold the market share otherwise the star will become a CASH COW.

Practical use of the BCG Matrix:
For each product or service, the 'area' represents the value of its sales. The BCG Matrix thus offers a very useful 'map' of the organization's product (or service) strengths and weaknesses, at least in terms of current profitability, as well as the likely cash flows. The need which prompted this idea was, indeed, that of managing cash-flow. It was reasoned that one of the main indicators of cash generation was relative market share, and one which pointed to cash usage was that of market growth rate.

Other uses and benefits of the BCG Matrix:
* A company is 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. * BCG model is helpful for managers to evaluate balance in the firm’s current portfolio of Stars, Cash Cows, Problem Children and Dogs. * BCG method 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.

Limitations of the BCG Matrix:
* It neglects the effects of synergy 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 than 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...
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