BCG matrix basically refers to a 2*2 matrix which is developed in the USA. It stands for the Boston Consulting Group. It is the renowned corporate analysis tool which provides the graphical representation of the organization to examine different business on the basis of their relative market share and industry growth rates. It refers to a two dimensional analysis of the management of the SBU ( strategic business unit) it basically includes the evaluation of the market potential and the evaluation of the corporate environment.
The business firm depends on the two major points-
Market share = SBU sales in this year leading the competitors sales this year
Market growth rate = Industry sales of this year - Industry sales of the last year
The dimension of the business strength, market share which helps in measuring the comparative advantage. The existence of the curve and the market share is achieved due to the overall cost leadership.
This matrix has basically four broad categories with the horizontal axis as the market relative share and on the vertical axis denoting the market growth rate. The midpoint of the market share is at 1.0. if all the Sbu are in the same industry, the average rate of the industry is used for the economy.
Resources are allocated to the business units according to the situation of the grid. The four categories of this matrix are known as the-
Stars
Cash cows
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Question marks
Dogs
These four cells help in representing the particular type of the business through the use of the BCG matrix. The explanation of all these stars are given below -
Stars
It depicts the units or firms having the large market share in the fast growing industry. They generate the good amount of the cash but also require the maximum amount of the huge investment to maintain the position in the market. Net cash flow is usually modest.
The SBU located in this matrix is very much attractive as they are located in the robust industry. This strategic business unit in this matrix is highly competitive as compared to the other quadrants. If the SBU is successful then the star becomes the cash cow at the time of the maturity.
Cash cow
Cash cow depicts the firms having the good relative market share in a mature and a slow growing industry. It requires the less investment as compares to stars and the cash generated by it can be further invested in the other business units. These SBU are the organizations key source of the cash, and also the core business of the industry. These SBU are the base of the organization as the organization depends on it for the further investment. In the case of the cash cow the businesses usually follows the stability strategies. When the cash cow lose its share or appeal in the market and when it move towards the deterioration then the retrenchment policy is taken into consideration.
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Marketing management
Question marks
Question marks basically represent the units having the low market share and located in a high growth industry. This type of business units require the huge amount of the investment so as to maintain or gain the market share in the market. They also require the proper attention that the venture is viable or not. There is no specific strategy here which can be adopted. Hence if the firm has the dominant market share then then it can adopt the expansion strategy, on the other hand retrenchment strategy can be adopted. Most of the companies tries to opt the question marks as the company wants to enter in the high growth market in which there is already a market share. If the question marks are ignored then it becomes the dogs, on the other hand if the large amount of the investment is made then they have the capacity of becoming the stars.
Dogs
Dogs basically represent the weak market share in this matrix in the low growth markets. They do not want the huge amount of the cash for the investment and on the other hand do not generate the huge amount of the cash for the further investment. The business units face the disadvantage of the low cost because of the low market share in the market.
In this case the role of the retrenchment strategy has been taken place because in this situation the units can gain the market share only at the expense of the competitors or the rival firms. The business units have low market share only because of the high cost, poor marketing strategy, ineffective marketing etc. if the dog has the strategic aim then it can be liquidated if there is the less prospects for it to gain the market share in the market. As a result the number of dogs should be avoided in the organization and it should be minimized as quickly as possible.
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Tanu Aggarwal
20615903912
Marketing management
BCG Matrix in the case of the Maruti Suzuki
Stars
The company has the long term profitability in the market because they have the huge relative market share and the market growth in the market.
Growth rate -
The product of Maruti Company like the SW2IFT, SWIFT DESIRE, and ERTIGA is the fast growing and has the potential or capacity to increase the market share and profitability in the market.
Cash cow
The Maruti Company has the high relative market share in the market but compete in the low growth rate as they generate the cash more than they required or the excess of their needs. That is the reason that the market compete in the low growth rate.
The sales of the MARUTI 800, ALTO, WAGNOR have faleen to the ladder three or four because of the introduction of new cars like ZEN ESTALIO and A-STAR.
Question marks
They are also called as the wild cats because that is the new products for the potential for the success but cash requirement is high in this case.
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20615903912
Marketing management
The cash generation in case of the Maruti Company is low. In the auto industry of the Maruti the products like the GRAND VITARA, SX4 have lead to the improvement of their reputation or the goodwill in the market.
Maruti Company is famous not only in the domestic market but also in the global markets.this lead to their increase profitability in the market.
Dogs
The dogs basically have the low market share and do not have the capacity to bring cash. Products of Maruti Company like BALENO, VERSA AND OMINI have the dogs share in the market. The companies market has liquidated and goes down thus.
Here the strategies adopted are divested, harvest and drop.
Therefore the BCG matrix can be used for the company's portfolio and also helps in the starting point of the resource allocation among the strategic business units.
Tanu Aggarwal
20615903912
Marketing management
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Tanu Aggarwal
20615903912
Marketing management
Advantages of the BCG matrix
Management simplification
BCG matrix basically helps in the optimum utilization of the resources among the various units and this helps the manager to identify the requirements by comparing them whenever the need arises. The BCG matrix basically helps in the simplification of the
factors by showing the employees the growth rate and market share of the business firm in the market.
Most well known matrix
This matrix is the most popular matrix which is accepted all over the world. There are the forums on the internet which helps to know that which best method is used of the BCG matrix. Those people who are the users of it do not loose the support and assistance. It helps in ensuring the resource allocation and the better profitability of the organization.
Decision making
The BCG matrix helps in making the comparisons so as to measure the growth and developmental rate of the company. It helps in ensuring the better decisions. The large organizations who want the better resource allocation use this BCG matrix. The BCG matrix takes only into account two considerations that is the relative market share. This might tempt the management to focus on certain product or divest prematurely.
Tanu Aggarwal
20615903912
Marketing management
Limitations of the BCG matrix
BCG matrix classifies businesses as low and high, but generally businesses can be medium also. Thus, the true nature of business may not be reflected.
Market is not clearly defined in this model.
High market share does not always leads to high profits. There are high costs also involved with high market share.
Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability.
At times, dogs may help other businesses in gaining competitive advantage. They can earn even more than cash cows sometimes.
This four-celled approach is considered as to be too simplistic
