datta meghe institute of management studies product and brand management unit 1 lecture 4 bcg matrix...

Datta Meghe Institute of

Management Studies

Product and Brand Management

Unit 1

Lecture 4

BCG matrix and its applications. 

2

Datta Meghe Institute of

Management Studies

Syllabus

• Unit 1

BCG matrix and its applications. 

Datta Meghe Institute of

Management Studies

Learning Objectives• What is Growth Share Matrix (Boston Consulting

Group)• What are SBUs

Datta Meghe Institute of

Management Studies

Growth Share Matrix (Boston Consulting Group)

• Classification of SBUs/products into four cell matrix based on– Market Attractiveness

• Indicator – Industry’s annual growth rate

• 10% traditional cutoff– Business Strength

• Indicator – Company’s Market Share Relative to Largest Competitor

The Boston Consulting Group’s Growth-Share Matrix

20%-18%-16%-14%-12%-10%- 8%- 6%- 4%- 2%- 0

Mar

ket G

row

th R

ate

10x 4x 2x 1.5x 1x Relative Market Share

.5x .4x .3x .2x .1x

Dogs 87

3 ?Question marks

? ?2

1

Cash cows

6

Stars

5

4

Star Strategies

• Leader expanding industry

• Generates large profits• Requires substantial

investments to sustain growth

• Farthest down on experience curve relative to competition

• Increase sales – e.g. new markets, new channels of distribution

• Increase market share

Problem Child or ?

• Low market share in expanding industry

• Needs substantial cash to improve its position

• Slow progress on experience curve

• Increase sales (limit to niche or increase market share (limit to niche)

• Leave market

Cash Cow

• Leader in mature or declining industry

• Can generate funds for other SBUs

• Maintain market share e.g. ensure quality, build customer loyalty, develop substitute brands

• Maximize Cash Flow e.g. increase usage rate, rate of replacement, modify expense structure, raise prices

Dogs

• Low market share in a mature or declining industry

• Slow progress on experience curve

• Cost disadvantages and few growth opportunities

• Harvest or Divest• Concentrate on niches

requiring limited effort

The Boston Consulting Group’s Growth-Share Matrix

20%-18%-16%-14%-12%-10%- 8%- 6%- 4%- 2%- 0

Mar

ket G

row

th R

ate

10x 4x 2x 1.5x 1x Relative Market Share

.5x .4x .3x .2x .1x

Datta Meghe Institute of

Management Studies

Strategy Implications BCG

• Star – Leader in Expanding Industry– BUILD - Continue to increase market share – if

necessary at expense of short-term earnings

• Problem Child – Low market share in Expanding Industry– HARVEST if weak, BUILD if strong.– Assess chances of dominating segment. If good, go

after share. If bad, redefine business or withdraw.

Datta Meghe Institute of

Management Studies

Strategy Implications BCG

• Cash Cow – Leader in mature or declining industry– HOLD - Maintain share and cost leadership until

further investment becomes marginal– Maximize cash flow

• Dogs – Low market share in a mature or declining industry– DIVEST Plan an orderly withdrawal so as to maximize

cash flow or concentrate on niches that require limited effort

Datta Meghe Institute of

Management Studies

Assumptions of Growth /Share Matrix

• High market share generates cash revenues ?• High Market growth uses more cash resources ?

Datta Meghe Institute of

Management Studies

Issues with Growth/Share Matrix

• Market growth is not the only factor related to cash usage.

• Market growth is not necessarily related to cash usage.

• Market share is not necessarily related cash generation.

• Multiple factors lead to profitability.• Cash is not the only factor in evaluating a

portfolio.

Datta Meghe Institute of

Management Studies

Issues With Growth/Share Matrix

• Limited to industries where experience curve is relevant

• Appropriate for volume industries• Overlooks perils of growth• Measurement problems• Product-market definition problems• Difficult to implement strategies

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Datta Meghe Institute of

Management Studies

Summary

Star – Leader in Expanding Industry

Problem Child – Low market share in Expanding Industry

Cash Cow – Leader in mature or declining industry

Dogs – Low market share in a mature or declining industry

17

Datta Meghe Institute of

Management Studies

Assignment

• Prepare a BCG matrix for companies in TATA group?

• LAQS and SAQS• Explain BCG matrix?• What are • Dogs• Cash cows• Stars• Question marks in BCG

18

Datta Meghe Institute of

Management Studies

Reference

• Marketing Management – Kotler, Keller, Koshy, Jha

• Principles of Marketing – Kotler, Armstrong, Agnihotri, Haque