bcg matrix of nestle

BCG MATRIX OF NESTLE MCOM-ISEM-1

CHAPTER NO: 1

INTRODUCTION

NM COLLEGE OF COMMERCE AND ECONOMICS 1


1.1 BACKGROUND

In a well diversified business, there are mainly units with different profitability.

Similarly, in a business there may be many products in different segment, and a business has to

do a “portfolio analysis” of various units it is handling and wide product range.

BCG growth share matrix developed by Boston consulting group of USA and popularly

known as BCG matrix takes a two dimensional view: market growth rate and relative market

share. Each dimension is divided in to two degrees: high and low.

HISTORY

In the 1970s, BCG’s experience-curve work led to an insight that had a significant impact

on business thinking. If rapid growth in market share was as important as the curve suggested,

then the usual approach to resource allocation- in which each business unit funded its own

growth- seemed a recipe for failure.

Businesses with low market share but high growth potential would never generate enough

cash to win the race down the experience curve. Those with high market share but few chances

for growth would generate far more cash than they could use productively.

BCG developed a simple conceptual framework, named the growth share matrix, to help

corporate managers determine when they should consider using profits from “cash cow”

businesses to fund growth in other businesses.

So great was the initial success of BCG matrix that for the greater part of two decades it

became the standard approach to capital allocation in multi-sector, multi-segment companies.

“Star, Dogs, Cash Cows and Question Marks” have become firmly embedded in the language of

business.

Although the more sophisticated capital markets and competitive landscape of the late

1980s and 1990s make the growth share matrix less central, it continues to be used as a primer in

the principles of portfolio management.



The growth share matrix, BCG matrix (Boston consulting group analysis) is a chart that

had been created by Bruce Henderson for the Boston consulting group in 1970 to help

corporation with analyzing their business units or product lines. This help the company allocate

resources and is used as an analytical tool in brand marketing, product management, strategic

management and portfolio analysis.



1.2 DATA COLLECTION

Sample of study:-

The sample for this study consisted of 15 respondents. The selected respondents in the age group

of 15-55 years belonged to varied employment, gender and income groups. Convenient sampling

technique was applied in selecting respondents as sample.

Data source:-

The study is based on primary and secondary data.

1) Primary data:-

A self-designed questionnaire consists of first and second part, which deals with the respondent’s

perception, was used for the purpose of primary data collection.

2) Secondary data:-

Secondary data have been collected from the different books and websites.

3) Data analysis:-

The data collected from various sources have been analyzed by using the techniques of

simple percentages, averages etc.



CHAPTER NO: 2

CONCEPTUAL FRAMEWORK



2.1 NESTLE INDIA AND BCG MATRIX

•With headquarters at Vevey, Switzerland and established in 1866, Nestle has growth today to be

the world’s biggest food and beverages company.

•Established in the strong foundation of growth through innovation and renovation, the company

is known today by its several strong brands which are dominating the markets the world over.

•Nestle India is a subsidiary of Nestle S.A. of Switzerland. With six factories and a large number

of co-packers.

• Nestle India is a vibrant company offering a number of products in the Indian market. In the

first nine months of 2010, it achieved strong growth of around 21%

•A number of brands are offered by the company in the country of which while some have

already established a strong hold, many others exhibit enormous prospects to dominate the

market and are only waiting for a favourable opportunity or appropriate and sizeable promotional

campaign by the company

With headquarters at Vevey, Switzerland and established in 1866, Nestle has growth

today to be the world’s biggest food and beverages company.

Established in the strong foundation of growth through innovation and renovation, the

company is known today by its several strong brands which are dominating the markets

the world over.

Nestle India is a subsidiary of Nestle S.A. of Switzerland. With six factories and a large

number of co-packers.



Nestle India is a vibrant company offering a number of products in the Indian market. In

the first nine months of 2010, it achieved strong growth of around 21% .

A number of brands are offered by the company in the country of which while some have

already established a strong hold, many others exhibit enormous prospects to dominate

the market and are only waiting for a favorable opportunity or appropriate and sizeable

promotional campaign by the company

NESTLE INDIA LIMITED

Riding on the growth of its power brands, Nestle has extended its dominance in food

business in India as well.

However, a number of its brands require a repositioning.

The present exercise is an attempt to analyze the position of the different brand offered

by Nestle India.

BCG matrix of Nestle and all the different brands offered by Nestle in India have been

analyzed along with a critical insight and also specific suggestion have been made

therein.



2.2 NESTLE BRANDS

2.3 BCG MATRIX

The beauty of BCG Matrix, a Matrix developed by a group known as Boston Consulting

Group, USA, is that it seeks to place the different products of an organization in different

grids such as to analyze them in a comparative manner in terms of profitability or in

terms of

(a) Percentage growth in sales and

(b) Market share position, to be exact. Thus

It gives an opportunity of self assessment to the organization to reassess its product

positioning and come out with alternative solution if the original placement of the

products in the market does not meet the desired level of growth.



These classes have a different meaning attached to them and can be represented on the

matrix .

BCG MATRIX EXPLAINED:

Thus, when all the products of the company are put in four cells (thus it actually provides an

opportunity to reassess the entire position of the company in terms of all the products it offers to

the market), the market standing of the company can be analyzed in four different classes

namely, stars, cash cows, dogs and question marks.3 Each of these classes have a different

meaning attached to them and can be represented on the matrix .



STARS:-

Businesses which have high growth rate and high market share are called stars. Such

businesses generate as well as use large amount of cash. The stars generate high profits

and represent the best investment opportunities for growth. This cell corresponds closely

to the growth phase of the product life cycle (PLC).The stars are market leaders and are

usually able to generate cash to maintain their high market share. When their market

growth rate slows, the stars become cash cows.

The main features of stars are:

High industry growth rate

High market share

The strategy for stars may be growth strategy. The firm may undertake various activities such

as:



R & D to introduce better

Effective after-sale-service to enhance customer loyalty

Appropriate promotion-mix (publicity, advertising, sales promotion)

EXAMPLE OF STAR PRODUCTS OF NESTLE: -

NESCAFE

CASH COWS:-

The business with low growth rate and high market share are classified in the quadrant.

High market share leads to high generation of cash and profits. The low rate of growth of

the business implies that the cash demand for the business be low. Thus cash cow normal

generates cash surplus. Cows can be milked for cash to help to provide cash required for

running other diverse operations of the company. Cash cows provide financial bases for

the company. These businesses which generate large amount of cash but their rate of

growth is slow. In terms of PLC, these are generally mature businesses which are reaping

the benefits of the experience curve. Cash cows are often former stars and can be

valuable in a portfolio because they can be ‘milked’ to provide cash for other riskier and

struggling business.

The main features of cash cows are:

Low industry growth

High market share

The company may adopt stability strategy, various activities may be undertaken such as:

Retentive advertising to maintain customer loyalty.

Guarantees and warranties depending upon the nature of product

Introduction of new models or designs including, smaller packages to generate more

sales.

EXAMPLE OF CASH COW PRODUCTS OF NESTLE: -

caralac



QUESTION MARK:-

Question marks are businesses with low market share but businesses have high growth

rate. Because of their high growth, the cash requirement is high, but due to their low

market share, the cash generated is low. As the business growth rate is high, the strategic

option would be to invest more to gain market share, pushing from low share to high.

Hence the business can move to star quadrant, and subsequently has the potential to

become cash cow, when the business growth rate reduces to a low level. When the

company cannot improve its low competitive position, the options available would be to

divest the business. Businesses with high industry growth but low market share for a

company are question or problem children. They require large amount of cash to maintain

or gain market share. In terms of PLC, the question mark is usually product in

introduction stage. “Question marks” are usually new products or services which have

good commercial potential. “Question marks may become ‘stars’ if enough investment is

made, or they may become ‘dogs’ if ignored. There are several industries in India where

many companies find themselves holding businesses which are ‘question marks’.

The main features of question marks are:

High industry growth

Low market share

The firm may adopt growth strategy for question marks. Various activities may be

undertaken to transform question marks into stars:

Penetration pricing strategy

Effective sales promotion and other elements of promotion mix

Dealers incentives

Enhancing customer relationship

EXAMPLE OF QUESTION MARK PRODUCTS OF NESTLE: -

Milo, nestle kitkat/barone/munch, maggiesauces,magi soups, nestle butter,nesvita,milk



DOGS:-

Those businesses which are related to slow-growth industries and where a company has a

low relative market share are termed as ‘dogs’. They neither generate nor require large

amount of cash. In other words if the business growth rate is low and the company’s

relative market share also low, the business is classified as dog. The low market share

normally means poor profits. As the growth rate is also low, attempts to increase market

share would demand prohibitive investments. Thus the cash required to maintain

competitive position often exceeds the cash generated. There is a net negative cash flow.

Under such circumstances, the strategic solution is to liquidate the business. In term of

PLC, the ‘dogs’ are usually products in late maturity or decline stage.

The main features of dogs are:

Low industry growth

Low market share

The company may adopt retrenchment strategy. The company may adopt divestment

strategy relating to the business unit or product line, or close down the unviable business.

EXAMPLE OF DOG PRODUCT OF NESTLE: -

Nestea, milkybar,nestle crunch

2.4 BCG MATRIX RELATED TO NESTLE

PRODUCT: NESCAFE POSITION: STAR

Reasons for present positioning:

Nescafe is one of the leading coffee brands in the Indian market.

It has find a dominance which is unparalleled by any other brand in the country.



Not only does it have a high market share but it growth rate is also significantly high.

The name Nescafe has become generic with coffee.

PRODUCT: CERALAC POSITION: COW


Ceralac has become one of the leading baby food products

It has witnesses quite a long hold in its market share with its sales increasing on a

continuous basis for almost more than one and a half decade.

Its different variants have kept competitors at bay and its finds a place easily at almost

every general or provisional store in the Indian market.

POSITION: QUESTION MARK

INTENDED PLACEMENT: STAR

The reason why these are is not placed as a dog is that it has the potential to expand

and also because the product lies in a market with high business growth rate.

The retailers don’t give much importance to these items as an item on the shelf but they

also do not completely disregard it off their stores.



WHY?

These might have not seriously taken promotional drive.

The main chunk of advertisements is seasonal

Extensive promotional exercise meant to place it in the mindset of the Indian psyche.

It has huge avenues for growth especially analyzing the extending Indian market.

Reasons for present positioning of Maggie pickle:

Maggi Pickles and, on account of its limited variety (especially in this taste crazy

country) and comparatively higher prices, has been unable to acquire a market necessary

for its bare minimum existence.

The sales of Maggi Pickles has never really trigged since its launch.

The placement of Maggi Pickles is doubted for the twin reasons of its high price and

packing, which seems to target it to the upper substrata while the lack of a significant

number of variants poses it a challenge to maintain itself in such households.

It is not a dog because it is not the market which has low growth rate. In fact the market

of packaged pickle is growing but it is Maggi Pickles which is unable to gather a

substantial share in this growing market.

Placing Maggi Pickles on the hearts and mind of the typical taste centric and money

conscious Indian consumer will require an overhauling and huge investment.



Extensive price cuts are required but the matching returns are doubtful.

Pickles being a non-durable product and their success essentially related to the taste of

the consumer, are not one of the core competencies of Nestle, which is better known to

introduce standard taste in the country and get them approved by the consumers.

Thus it is better advised to disinvest in the business and focus on other brands.

Facts do not favor Nestle to continue with its butter.

Instead of no response, a significant number of retailers are of the opinion that Nestle

Butter seems to be rejected by the consumers for the reason that its taste does not suit the

Indian psyche.

Thus it is advisable for Nestle to discontinue with butter, as it did with its water brand,

Pure Life. Also, it would be better to concentrate on other brand than to go in for a head

on collision with Amul, the market leader, which is inevitable on account of the same

market which both the products cater to.

Product: Milky Bar

Position: Dogs


It become quite popular in and around the year 2000 but it never reached the stage of a

power brand.

Primary tried by the Indian consumer as a craze which laid in trying the first no brown

chocolate, Nestle Milky bar was a sweet chocolate with cream color. Thus the primary

acceptance of Milky bar was not based on its core qualities but on the basis of certain

peculiarities which it contained, differentiating it from other products in the same line.



Milky Bar, as a chocolate, though has a growing market, yet it has been placed as a dog

on account of the inherent lack of core quality which makes it generic with chocolates.

This was the main reason why it was never considered a competitor by other chocolate

manufactures and the consumers also treated it so.

2.5 STRATEGIC IMPLICATIONS:

Most companies will have different segments scattered across the first four quadrants of the BCG

matrix, corresponding to cash cows but avoid over-investing. The surplus cash generated by cash

cows should invited first in star businesses, to maintain their relative competitive position. Any

surplus cash left with the company may be used for selected question mark businesses to gain

market share for them. Those businesses with low market share and which cannot be adequately

funded may be considered for divestment. The dogs are generally considered as the weak

segments of the company with limited or no new investments allocated to them.



2.6 ADVANTAGES OF BCG MATRIX

1. Diversification with sustainable profits:

The basic message is very simple. It begins with the fact that most companies participate in a

number of different “businesses”, even if all fall within one general industry category. These

businesses were not created equal, are not equal at any point in time, and will never offer

equal opportunities to earn high and sustained returns.

2. Allocation of scarce resources of the company:

The portfolio concept asserts that one of the primary responsibilities of the chief executive is

to make decisive investment choices for the benefit of shareholders. To make choices there

must be alternatives. For some companies there are too many, and the challenge is finding a

sound rationale for discrimination. For others there are too few, and the challenge for them is

creating opportunity. For all there is a need to ensure that every major alternative for a given

business has been uncovered and considered before a course of action is chosen.

3. Higher profits and growth rates:

Companies must choose on the basis of the closely linked combination of sustainable

competitive advantage and potential financial contribution to the company. The former yields

the high profits that convert to high net cash flow as growth slows and investment

requirements moderate. This in turn creates the high returns and high valuations that satisfy

shareholders and protect against take-over. More positively, high returns and high valuation

make raising new capital relatively easy and cheap. They make acquisitions possible. The

company has superior ability to repeat the process and invest to grow in pursuit of

competitive advantage in new businesses.

4. Raising equity capital only when necessary:

The portfolio concept stresses the critical need to keep resources fully employed in the areas

where they have the highest yield or potential yield. This means focusing technical and



human resources where the company can gain and hold an edge over competitors that are

valued by customers. It means concentrating physical assets where they can be used to create

or support unique or at least scarce capability. And it means using equity capital only where

there is no safely cheaper alternative.

5. Simple to understand and implement:

Imagine a company following these guidelines, and you have a company that grows, is like

all great ideas, the portfolio concept is simple. The portfolio concept is a guide to action, a

summary of thinking, and not a substitute for detailed analysis and judgment.

6. Competitive advantage principle:

The portfolio concept builds on the observation that superior profitability depends first and

foremost on competitive advantage, and that growth is easiest where the market itself is

growing. Often superior market share carries with it competitive advantage. Advantage may

be based on superior technology, speed of response, quality and attention to specific

customer needs location-many factors that may or may not translate in to overall market

share leadership. This almost always requires focus within the market place. Thus the search

for advantage must be serious, detailed, imaginative, and rigorous. The bigger the company

and the further removed the strategist from the business, the more likely it is that opportunity

will be overlooked, and the greater the risk of oversimplifying what, it will take to succeed.

7. Discovering growth:

Second, there is the issue of growth. The long period of across-the-board expansion through

the sixties and in to the seventies spoiled us, and we now think of growth as more elusive.

The easy conditions of broad market growth have given way to more localized patterns of

growth. These often involve substitution-not just product-for-product substitution, but the

substitution of one better way of doing business for another. Latent customer needs must

uncover, before they become obvious. Creating and exploiting growth opportunities in these

conditions calls for more insight, better preparation, and greater risk taking than before.

Growth is often where you make it. Growth opportunities often lie dormant within what at



first sight appear to be low growth, “mature” markets. This makes higher the importance of

first-class, forward thinking staff work closely combined with vigorous and decisive

management. Building and sustaining a strong portfolio is more difficult now, but more

necessary than ever.

2.7 LIMITATIONS OF BCG MATRIX

1. Predicting profitability from growth and market share:

BCG analysis assumes that profits depend on growth and market share. The attractiveness

of an industry may be different from its simple growth rate and the firm’s competitive

position may not be reflected in its market share.

2. Difficulty in determining market share:

There is a heavy dependence on the market share of a business as an indicator of its

competitive strength. The calculation of market share is strongly influenced by the way the

business activity and the way the total market are defined. In case of complex and

interdependent industries, it may also be quite difficult to determine the market share based

on the sales turnover of the final products only.

3. Disregard for human aspect:

The BCG analysis, while considering different business does not take in to consideration the

human aspect of running an organization. Cash generated within a business unit may come to

be symbolically associated with the power of the concerned manager. As such the manger

running a cash cow business may be reluctant to a part with the surplus cash generated by

this unit. Similarly, the workers of a dog business which has been decided to be divested may

react strongly against in the ownership. They may consider the divesture as a threat to their

livelihood. Thus BCG analysis could throw up strategic options which may or may not be

easy to implement.



4. Variety of influences:

Long term profitability is subject to a variety of influences not directly tied to growth and

market share. This fact has not been considered adequately by the four-cell matrix. For

example, in many industries, organizations with low market share are able to earn high profit

and sometimes outperform large rivals. Similarly, high market share business in low growth

market may not generate high cash surplus as the competition is likely to be stiff and profit

may squeeze.

5. Other dimension:

The four cell matrix gives consideration only to relative market share position and growth of

sales. Though, these are important dimensions but other dimensions are equally important

from strategic point of view. These may be stage of product, strategic posture of different

businesses, presence of competitive position emerging threats and opportunities, capital

requirements, size of market etc.

2.8 EFFICIENCY OF BCG MATRIX AS A TOOL OF STRATEGIC

MANAGEMENT

1. BCG is a framework which measures the industry growth rate and relative market share

so as to help the firm identify each product either as a star or a dog and accordingly

allocate its scarce resources.

2. BCG also helps a company analyze their various business units and product line, so as to

formulate different strategy as per their industry growth and relative market share.

3. As regards sales and promotion, BCG helps in brand and product positioning thereby

creating brand equity for each and every business unit separately and not as an entire

company.



4. Every company and its various product lines go through a life cycle of introduction,

growth, maturity and decline and with BCG it is possible to manage these.

5. In today’s times only a multi product multi business diversified company can survive and

a now in the competitive market. This is possible only with BCG.



CHAPTER NO:3

ANALYSIS



1. Do you eat nestle products

A) Yes B) No

Biscuits Number of Respondents

Yes 100%

No 0%

100%

productsYes No



2. What type of products you normally prefer

A) Branded B)low cost

80%

20%

Type of product

Branded low cost


Type of biscuits Number of respondents

Branded 80%

Low cost 20%


3. How often do you nestle product

A) Once In A Month B) Once In A Week

C) Alternate Days D) Every Day

Do you eat biscuits Number of respondents

Once In A Month 7%

Once In A Week 40%

Alternate Days 20%

Every Day 33%

Once In A Month

Once In A Week

Alternate Days

Every Day0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

7%

40%

20%

33%

Do you eat nestle product

Number of respondents



4. Rank the buying factors(Please tick any one of them)

A) Price B) Brand Name

Buying factors Number of respondents

Price 33%

Brand Name 67%

Price Brand Name0%

10%

20%

30%

40%

50%

60%

70%

80%

33%

67%

Buying factors




5. Please tick the brand normally prefer to buy

A) nestle B) amul

C) mahanand D) Others

Brand normally prefer to buy Number of respondents

nestle 47%

amul 20%

mahanand 6%

Others 27%

47%

20%

6%

27%

Brand normally prefer to buy

nestleamulmahanandOthers



6. If nestle is not available in the shop will you look for it in the next shop

A) Yes B) No

nestle is not available in the shopyou look for it in the next shop Number of respondents

Yes 60%

No 40%

60%

40%

nestle is not available in the shop you look for it in the next shop

Yes No



7. If the retailer gives you another brand product instead of nestle, will you buy

A) Yes B) No

Will you buy another brand of

product instead of nestle


Yes 53%

No 47%

Yes No43%

44%

45%

46%

47%

48%

49%

50%

51%

52%

53%

53%

47%




8. Please rate the attributes of the various brand given below

On a scale of 1-5 (1 being the least important and 5 being the most important)

Attributes nestle amul mahanand

Size

Nutrition

Ingredients

Freshness

Color

Flavors

Various brand Number of respondents

nestle 40%

amul 47%

mahanand 13%

nestle amul mahanand0%5%

10%15%20%25%30%35%40%45%50%

40%

47%

13%





From the survey concluded that 100% of the respondents eat nestle products

80% of the respondents normally prefer branded one and the remaining prefer low cost

product

From the total number of respondents 40% eat nestle product once in a week and the

remaining respondents answered that 33%,20% and 7% respondents eat nestle product every

day, alternate and once in a month respectively.

67% respondents answered that they buy the nestle product by brand name and the remaining

respondents buying factor is price

47% normally prefer to buy nestle than the other one

60% of the respondents answered that they will look for the next shop if nestle is not

available in the shop

50% of the respondents will not buy the another brand instead of nestle

40% of the respondents rated that the Britannia attributes is nice of its color, flavor, etc. 47%

of the respondents rated that the amul is better than the nestle.



CHAPTER NO: 6 4

APPENDIX



4.1 ANNEXURE-QUESTIONNAIRE

NM COLLEGE OF COMMERCE & ECONOMICS

Name: ______________________________

Address: _____________________________

Email Id: ____________________________ Mobile Number:__________________

1. Do you eat biscuits

B) Yes B) No

2. What type of biscuits you normally prefer

B) Branded B)low cost

3. How often do you eat nestle product

A) Once In A Month B) Once In A Week

C) Alternate Days D) Every Day

4. Rank the buying factors(Please tick any one of them)

A) Price B) Brand Name

5. Please tick the brand normally prefer to buy

A) nestle B) amul

C) mahanand D) Others

6. If nestle is not available in the shop will you look for it in the next shop

A) Yes B) No

7. If the retailer gives you another brand product instead of nestle, will you buy

A) Yes B) No



8. Please rate the attributes of the various biscuits given below

On a scale of 1-5 (1 being the least important and 5 being the most important)

Attributes nestle Amul Mahanand

Size

Nutrition

Ingredients

Freshness

Color

Flavors



4.2 BIBLIOGRAPHY

Strategic management publication MananPrakashan

Strategic management publication VipulPrakashan

4.3 WEBLIOGRAPHY

www.cimaglobal.com

www.accaglobal.com

www.managementmania.com

www.bcg.com

www.cesc.co.in

www.marketing91.com


bcg matrix of nestle

Documents

growth share matrix

data analysis

rapid growth

secondary data

market growth rate

high market share

low market share

bcg matrix of nestlemcom