bcg matrix Flashcards
About BCG Matrix
The BCG Matrix, also** known **as the Boston Consulting Group Matrix,
is a **strategic tool **used to analyze a company’s portfolio of products or services.
it was **developed **by Bruce D Henderson in the early 1970s and is based on the concept that a company’s products or services can be classified into four categories:
1 Star
2 Cash cows
3 Question mark (also called Problem child or Wildcats)
4 Dogs
what is bcg matrix ?
The BCG matrix is a **2x 2 matrix **
One side of the matrix represents the rate of markel growth( market growth as compared to cut off rate) for a particular product or business unit
The other side of the matrix represents the relative market share (market share of our company as compared to leader) that is held by the product or business unit
The circle BCG matrix is shown in figure which shows and function?
1 The individual products or business units of the firm can be plotted on the **matrix as a circle. **
2 The **size of the circle shows **the relative money value of sales for the product.
3 A large circle therefore represents a product with large annual sales.
purpose of bcg matrix?
1 It allows the **strategic planners **to select the **optimal strategy **for individual products or business unis, whilst also ensuring that the selected strategies for individual units are **consistent with the overall corporate objectives ***
2 The **objective of the matrix **is to assist with the allocation of funds to different produts or business units.
Approach of applying bcg matrix?
Step 1-Calculate market growth for each specific product or business unit and decide high or low market growth
Step 2- Calculate market share of specific product or business unit for each year
Step 3 Compare the market growth rate against arbitrary growth rate (if given) to determine high/low growth market. In addition to it, compare market share of own company against share of market leader in order to determine high/low market share
Step 4-Classify the individual product into four categories and select appropriate strategies.
market growth/size?
Market growth rate is the percentage increase in total market sale of all firms operating in the market (also known as market size) as compared to prior periods.
High or low market growth can be determined ?
If computed market growth rate greater than Given arbitrary growth rate High market growth
If computed market growth rate** less than** Given arbitrary growth rate **Low market growth
**
Exam note: If arbitrary growth rate of market is not given in question then growth compared with each other to determine high/low growth rate. rates of individual products
relative market share?
Market share is usually measured as the annual sales for a particular product or business unit in proportion of the total annual market sales
Relative market share is measured as low or high against the market?
if computed market share** greater than ** Market share of biggest competitor
HIGH Relative Market share
If computed markat share** LESS THAN ** Market share of biggest competitor
LOW Relative Market share
STAR PRODUCT STRATEGIES?3
1 Market aggressively to increase or maintain market share Investment
2 in new equipment and R&D
3 Financing needs can be met from cash cow.
CASHCOW PRODUCT STRATEGY?3
1 Defend and maintain market share
2 Spending on R&D should be limited
3 Cash can be used to develop other products
QUESTION MARK PRODUCT STRATEGY?
1 Investing lot of cash to increase market share or
2 Abandon the product
3 DECREASE PRICES
DOG OR PROBLEM CHILD PRODUCT STRATEGY?
1 Focus on short term future
2 Avoid risky investments
3 will use up Cash If Firm spends money to preserve market Share
Summary of strategies by using BCG matrix
Build Share?
Company can invest to increase market share (eg. turning a “question mark” into a star)
Summary of strategies by using BCG matrix
HOLD?
Company invests just enough to keep the SBU in its present position
