Bcg Growth –Share Matrix

BCG is an acronym which stands for Boston Consulting Group Growth –share matrix. This is a mode which is recommended for all companies to use in the event of marketing and resource allocation. The information collected by experts in business environment indicates that there is no strategic management which appears to be successful without using the BCG growth model.

Boston Consulting Group is a model widely used by many multinational and domestic companies as instrument in portfolio management in the event of employing a strong base to face their competing companies in the industry they are operating.

The BCG matrix helps to play as analytical tool where a certain company is faced with problems of constant market growth rate and lack of advancement in general (http://fmcg-marketing. blogspot. com/2007/11/bcg-matrix. html). Boston consulting group (BCG) growth now comes in as a firm which gears its efforts in giving consultation services to other companies in general organization management where need arises. This firm is highly respected in the business industry due to their efficient and effective job.
This firm was started in the 1970s as a business firm but today it has the leading level in terms of business schools and executive education Programmes around the world (http://fmcg-marketing. blogspot. com/2007/11/bcg-matrix. html). Boston Consulting Group labels As a management tool Boston Consulting Group-share matrix can be used to classify product portfolio in four businesses types which are based on four graphic lebels. this include stars cash cows question marks and dogs.
it also stipulates priorities which should be extended to a companies product portfolio. According to Boston Consulting Group, priorities in company’s products portfolio can be given by use of the products portfolio cash usage and cash generational, i. e. input and output. Consequently the model gives the company a high light on how to deal with various product lines. For multinational companies the model acts as an indispensable tool for analytical purpose in this event of evaluating their organizations diversified product lines (http://bankelele.
blogspot. com/2007_07_01_archive. html). Market growth and relative market share are the two dimensions in which BCG growth-share matrix can be based on. The two aspects reflect the level in which an organization has excelled in the industry it is operating. Products which are in fast growing market should be highly valued because they bring into the organization the highest profit margin in the organization and this can only be revealed through use of BCG growth-share matrix.
Due to correlation between relative market and products cash generation, BCG helps to capture market share of a strategic business unit as well as analyzing how the units in an organization can be well advanced to have a competitive advantage against those of the competitors. The underlying assumption in BCG is that the more an organization is engaged in a particular activity the more they save costs which could have been incurred during the time of trading (http://fmcg-marketing. blogspot. com/2007/11/bcg-matrix. html).
This is a suggestion that the effect in experience curve requires that market share to be increased to enable the company to lower the cost in the process of business operation. For those companies with dominant market share then its clear that they will have a cost advantage over competition companies because they have won a greater share of the market (http://bankelele. blogspot. com/2007_07_01_archive. html). The Boston consulting group (BCG) matrix is based on a products life cycle theory which states that a product has four main stages in growth i. e. introduction in to the market, developed through strategic planning, maturity stage after it has gained market adaptation and finally decline stage whereby it starts loosing its taste and demand goes down.
According to BCG matrix the product life cycle determines product portfolio of a business unit. The four categories in which BCG matrix use in placing products in portfolio includes; cash cows whereby, these are units in an organization which have high market share but are slow in growth. Generally these are units which generate cash in excess of the amount of cash needed to maintain the business.
All operating companies would like to own and maintain many of cash cow units to maintain the operations in their industries. They are referred to as stand and boring now that investing to this kind of unit might lead to low returns in a business companies normally invest low but they gain a harvest a lot from them,. These units should be well maintained for growth of other units in a business (http://fmcg-marketing. blogspot. com/2007/11/bcg-matrix. html) Dogs are units with low market share in mature slow growing industry usually referred to as pets.
These units have got little or no cash generation which can be used to run or maintain the affairs in a business market share. From accounting perspective these units can only be good in a business in the matter of creating job opportunities to the jobless but in strategic market view they are un worth to be maintained or included in a business product line. Such product units should be removed from business operating system to avoid negative consequence in future. This is because they depress a profitable company’s return on assets ratio used by many investors to judge how well a company is being managed (http://fmcg-marketing. blogspot. com/2007/11/bcg-matrix. html).
Question marks are the third class in product portfolio. They are units with high growth rate but low market share and thus they consume a lot of cash though they generate very little of it and this results to high rate of cash consumption in the business. These units have a potential of accelerating to a star level but when the market growth slows, they turn to be cash cows. If the market growth declines completely leading to low consumption, then question marks becomes Dogs.
Therefore question marks should be carefully scrutinized to see whether they are worth investing in and corrective control measures to be taken. Stars are leader units in the market industry. They are units with high market share in a fast growing industry (http://fmcg-marketing. blogspot. com/2007/11/bcg-matrix. html). To maintain Stars in a business requires a lot of cash and therefore cash cows becomes the support of Stars. This is possible only if the business is worth to be leader in the market industry. If not well maintained Stars, can fall from being leader in the market and become cash cows.
Due to the market trends, products in a particular organization keep on changing direction from Stars to Dogs. The natural cycle for most businesses units is that they start as question marks then turns into stars. Eventually the market stops growing and business unit changes from Stars to Cash cows and then Cash cows turns to Dogs with time. BCG growth-share matrix in Unilever Company For a fast growing company and a multinational one for that matter, Unilever Company which engages in different product lines have got no other option but to use the BCG model.
This is because an invaluable analytical tool in their diversified product lines as it has been witnessed. According to FMCG and Retail marketing Blog article in February 2008, Unilever Company grew to sputter as P &G and it has taken market share in India. The Unilever Company sells household foods and other consumer related goods. According to the article released on February2008, the speculation of the company seems to notice a global revenue growth slow in the year 2010 as Procter and Gamble Company (http://universityessays. tripod. com/bcg_growth_share_matrix_boston_consulting_group.
htm) Being the second world’s largest consumer product maker, Unilever has heavily relied on accelerating shipments of Surf Excel detergent in India to make up for sluggish sales in Europe. One of their branches is stocking Olay-skin-care products after nearly having the local prices of Ariel and Tide in 2004. The speculation states that there will also be a down fall of the Unilever’s product market share in Asia and Africa where the company has heavily marketed their products since its start of operation (http://www. amazon. co. uk/review/product/1403944539?
showViewpoints=1) The estimated fall in Unilever overall sales growth is expected to be 4. 9 per cent in 2010 from estimated 5. 3 per cent in 2007. Its competitor, Procter &Gamble will have a market share increase in the year 2010, according to Bloomberg survey analysts. Unilever Company has various companies and factories in every continent and research laboratories at Colworth and Port Sunlight in England. It started a five year feasibility company initiative in their goal and making sure that they achieve their competitive strategy purposes and speculations.
This was aimed at converging the marketing and disparate arms in their business including personal care and consumables into an umbrella function displaying the breadth of their contributions to personal vitality. As stated by its chief executive officer, Patrick Cescan, the company is planning to take a strong stance on sustainability in the market. Apart from Breyers and Ben and Jerry’s, all its ice cream business is done under the umbrella called Heart brand which was launched in the year 1999 and modified in 2002 as a way of promoting international brand awareness and cross-borders synergies in manufacturing and marketing.
The company has the biggest market share in the ice cream industry with an annual turn of €5 billion (http://fmcg-marketing. blogspot. com/2008/02/unilever-growth-to-sputter-as-p-takes. html) According to Boston Consulting Group, development of matrix requires the assessment of a business portfolio, which includes an organization’s autonomous divisions in terms of their profit or activities. Unilever company has advanced its strategic management plans to ensure that their products are competitive in the market.
Being a consumer goods producer, it has observed global values in terms of cultural diversities and other related issues in their marketing to ensure that they are not faced out of market. Although the model is not used as it was used in the past, BCG growth/share matrix it has one advantage in that it has an ability of providing a comprehensive snapshot of the positions of a company’s various business concerns. It also draws attention to the cash flow investment characteristics and needs of organization to know how to manage and also help the organization to know how to manage and maintain a balanced portfolio.
Unilever Company has collected the highest profits from their sales in Africa than any other continent where they have been involved in trading despite the decline in capital investment (Mercer, D, A 1993). In India and Asian countries investment is increasing and pound for pound profits are much higher than Europe. In the 1970s the Unilever company created an intricate services discount and bonus system in its Danish subsidiary, margarine selskabet aiming at selling as much as margarine as possible.
This helped the company put business at a competitive position (http://fmcg-marketing. blogspot. com/2008/02/unilever-growth-to-sputter-as-p-takes. html) BCG matrix has been widely used in Unilever especially in house hold goods whereby tastes and preferences change every time where applied BCG matrix helps not only in market growth but also position of cash flow in the organization. BCG matrix has acted as good indication of Unilever markets strength and future potentials and attractiveness to future competitors. Now that BCG matrix ranks only market share and industry growth rate it implies the actual profitably and purpose of any business unit in relation to the 4 graphic cycles in product portfolio.
Unilever Company has dropped many products and developed new ones in the event of satisfying the market demands. In Africa consumer goods from Unilever company has highly excelled due to clear plan and matching with consumer interests. This has been possible through use of BCG matrix which helps identify the position of product in the market and take the possible measures for instance the cash cows business as units will gain their expected profits very fast which give s the management team an easy jobs.
The house hold goods in Unilever including soaps and other types of ointments have excelled nicely in African and Asian countries. This helps to reveal good position in Unilever Company among other practicing multinational companies. This helps the company to make wise investment to get the targeted profits. The company has also experienced a lot of problems in certification of some the products in certain countries. This forces it to use extra cash to make aggressive promotion in already existing market to increase their sales.
In 2005, the company had to permit Glidat Strauss to export its brand of ice cream to United States due to strict kosher certification of products in Israel where by ice cream and Krembo may be sold only in kosher supermarket and other important shops. The company has also invested much in some of its product brand like in personal care products which are believed to be in the question marks. Some of these personal care products cannot become cash cows hence this is seen as wastage of money. The idea behind investing instars and questions is to enable them become cash cows.
If they don’t achieve real market dominance then it is advisable for the company to disinvest and try to get whatever possible cash out of the question marks that were not selected (http://www. referenceforbusiness. com/management/Sc-Str/Strategic-Planning-Tools. html0).
One of the limitations of Boston Consulting Group matrix is that high market share is not the only indicator for success factor but there are some other underlying forces which needs also to be considered. Also market growth is not only indicator for attractive ness of market.
Sometimes Dogs can earn even more cash just the same as cash cows. All in all BCG matrix method can help understand or identify a mistake which is repeatedly done by an organization in the strategies they use. This is because there is a well installed system of checking the approaches to strategies used such as generic growth target or generic reform on capital invested for the entire corporation. If the company is experiencing a problem with some of the brand product lines they can dump them just as it is proposed in BCG matrix.
Unilever Company used the BCG model as a tool for understanding where their power has in business situation. This is possible through understanding of both strength of their current position and strength of the position they are anticipating for.
The company has put a strategic plan for 5 years which is aimed at saturating the whole world with their products which are competitive and consumer friendly. A team has been put in place to act on this by improving the company’s weaknesses to strength and stipulate the best methods which would be followed.
All this is done to make sure that the company is performing at a level of fulfilling the set goals and standards (http://www. referenceforbusiness. com/management/Sc-Str/Strategic-Planning-Tools. html). For the case of stars most companies’ uses prices skimming to penetrate the market. The prices are normally high and this can lead to low sales. In most cases price skimming can only take very short periods of time which later affects demand of those products hence this products ends up entering in another level of the cycle like “Questions marks” which denies the company from enjoying its benefit (www.
eduessays. com/Essays-x02887. htm). The Boston consulting group model has got other related limitations in that when used can make a company end up loosing market share. The BCG matrix model only insists an allocation of resources rule using cash but it does not specify the specific amount of share which a company will receive from this allocation and the market rate. Unilever company have ventured in very many consumer products and it becomes really hard to know which products is in stars or question marks hence it might end up fueling cash to a no growth products line.
In some other instances a high market share does not lead consequently to a high profit margin it is clear that low business share are profitable, this can blind font the management to run their company at a loss without knowing if they insist on using more cash to such products. This is instigated by the fact that the model insists on only two dimensions i. e. market share and growth rate of which other factors are held constant in theory but not in real practice (http://www. kmtalk. net/article. php? story=20070103041059823).
The comparison given by BCG matrix is between the product and strategic business unit (SBU) only with a strong competitor in same level yet it disregard small competitor with fast growing market share. Like in consumer goods the Unilever Company has market share. Like in consumer goods the Unilever Company has targeted only the multinational companies without knowing that there are other small companies growing in their industry which can affect their sales in certain countries they have invested. This can lead to a company being put out of place in the market industry.
Company which needs to be a leader in terms of market share should produce new products and charge them at a lower price to penetrate to the market. On the other hand BCG model is helpful to management in evaluating the firm’s current balance among stars cash cows, problem child and dogs. And it is also applicable to multinational companies to seek large volume and experience effects because it is easy to understand. This model provides management with basis for understanding and deciding upon how to prepare for the contingent future causes of action.
This is useful especially when allocating the limited resources (www. eduessays. com/Essays-x02887. htm).
References
Economic matrix in big enterprises, available at: http://bankelele. blogspot. com/2007_07_01_archive. html, accessed on July 24, 2008.
Executive performance incentive plan of the Unilever Company, available at: http://www. secinfo. com/dkrf. 66. 8. htm, accessed on July 24, 2008 The product portfolio of a business unit, available at: http://fmcg-marketing. blogspot. com/2007/11/bcg-matrix. html, accessed on July 24, 2008.
The BCG growth-share matrix, available at: http://universityessays. tripod. com/bcg_growth_share_matrix_boston_consulting_group. html accessed on July 24, 2008.
The FMCG & RETAIL Marketing Blog, available at: http://fmcg-marketing. blogspot. com/2008/02/unilever-growth-to-sputter-as-p-takes. html accessed on July 24, 2008.
Strategic planning tools, available at: http://www. referenceforbusiness. com/management/Sc-Str/Strategic-Planning-Tools. html accessed on July 24, 2008.
Limitations / problems of the BCG Matrix, available at:
http://www. eduessays. com/Essays-x02887. htm accessed on July 24, 2008.
Mercer, D, A ((1993) Two Decade Test of Product Life Cycle Theory pp 269-274, British Journal of Management, Vol. 4 http://www. newint. org/issue172/keynote. htm accessed on July 24, 2008.
Unilever company and product lines, available at: http://www. amazon. co. uk/review/product/1403944539? showViewpoints=1 accessed on July 24, 2008.
Strategies in Unilever Company, available at: http://www. kmtalk. net/article. php? story=20070103041059823 accessed on July 24, 2008.

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