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CHANAKYA NATIONAL LAW UNIVERSITY

The final draft for the fulfilment of project of “FUNDAMENTALS OF


MANAGEMENT”

on

“BCG MATRIX”

Submitted to:-Mr. MANOJ MISHRA

Faculty of Fundamentals of Management

Submitted by:-Harshit Gupta

Roll No. 1623

1styear B.B.A.LLB. (Hons.)

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Contents
DECLARATION.....................................................................................................................................1

ACKNOWLEDGEMENT.......................................................................................................................2

RESEARCH METHODOLOGY.............................................................................................................3

HYPOTHESIS.........................................................................................................................................3

AIMS & OBJECTIVES...........................................................................................................................4

INTRODUCTION TO BCG MATRIX...................................................................................................4

FOUR QUADRANTS OF BCG MATRIX...........................................................................................15

ADVANTAGES OF BCG MATRIX....................................................................................................18

LIMITATIONS OF BCG MATRIX......................................................................................................18

CASE STUDIES...................................................................................................................................19

CONCLUSION.....................................................................................................................................26

BIBLIOGRAPHY.................................................................................................................................26

DECLARATION
I hereby declare that the work reported in the BA LL.B (Hons.) Project Report entitled “Apply
BCG Matrix on any Operating Unit and Project the actions desired from top management”
submitted at Chanakya National Law University, Patna is an authentic record of my work carried

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out under the supervision of Mr. Manoj Mishra. I have not submitted this work elsewhere for
any other degree or diploma. I am fully responsible for the contents of my Project Report.

ACKNOWLEDGEMENT
Writing a project is one of the most difficult academic challenges I have ever faced. Though this
project has been presented by me but there are many people who remained in veil, who gave
their support and helped me to complete this project.

First of all I am very grateful to my subject teacher Mr. Manoj Mishra without the kind support
of whom and help the completion of the project would have been a herculean task for me. He
took out time from his busy schedule to help me to complete this project and suggested me from
where and how to collect data.

RESEARCH METHODOLOGY

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This project is based upon doctrinal method of research. In many areas non-doctrinal method is
also used.

This project has been done after a thorough research based upon intrinsic and extrinsic aspects
of the project.

Sources of Data:

The following secondary sources of data have been used in the project-

Articles.

Books

Journals

Websites

Reasearch Papers

Method of Writing:

The method of writing followed in the course of this research project is primarily analytical.

Mode of Citation:

The researchers have followed a uniform mode of citation throughout the course of this project.

HYPOTHESIS
BCG Matrix is a very good tool analyse the market positions of any business organization.

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AIMS & OBJECTIVES
The researcher will do research to understand the concept of BCG MATRIX and its application
on operating units.

INTRODUCTION TO BCG MATRIX


DEFINITION

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The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of
the Boston Consulting Group in the early 1970's. It is based on the observation that a company's
business units can be classified into four categories based on combinations of market growth and
market share relative to the largest competitor, hence the name "growth-share". Market growth
serves as a proxy for industry attractiveness, and relative market share serves as a proxy for
competitive advantage. The growth-share matrix thus maps the business unit positions within
these two important determinants of profitability.

If you're the owner of an established company, you may wonder how best to deploy resources to
enhance your prospects. Since 1968, the BCG matrix, also known as the Boston or growth-share
matrix, has helped companies answer that question by providing them a way to analyze product
lines in search of growth opportunities.

Named for its creator, the Boston Consulting Group, the BCG matrix aims to identify high-
growth prospects by categorizing the company's products according to growth rate and market
share. By optimizing positive cash flows in high-potential products, a company can capitalize on
market-share growth opportunities.

Reeves Martin, senior partner and managing director of Boston Consulting Group, said that
nearly 50 years after its inception, the BCG matrix remains a valuable tool for helping companies
understand their potential.

"The concept of BCG's growth-share matrix, central nowadays to business schools' curriculum
on strategy ... provided companies with a disciplined and systematic tool for portfolio
management," Martin told Business News Daily. "Recently, Harvard Business Review named
BCG's matrix one of five 'frameworks that changed the world.'"1

If you're the owner of an established company, you may wonder how best to deploy resources
to enhance your prospects. Since 1968, the BCG matrix, also known as the Boston or growth-
share matrix, has helped companies answer that question by providing them a way to analyze
product lines in search of growth opportunities.

1
http://www.businessnewsdaily.com/5693-bcg-matrix.html

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Named for its creator, the Boston Consulting Group, the BCG matrix aims to identify high-
growth prospects by categorizing the company's products according to growth rate and market
share. By optimizing positive cash flows in high-potential products, a company can capitalize on
market-share growth opportunities.

Reeves Martin, senior partner and managing director of Boston Consulting Group, said that
nearly 50 years after its inception, the BCG matrix remains a valuable tool for helping companies
understand their potential.

"The concept of BCG's growth-share matrix, central nowadays to business schools' curriculum
on strategy ... provided companies with a disciplined and systematic tool for portfolio
management," Martin told Business News Daily. "Recently, Harvard Business Review named
BCG's matrix one of five 'frameworks that changed the world.'"

Understanding the matrix

To create a BCG matrix, businesses gather market-share and growth-rate data on their business
units or products. One large square is drawn and is divided into four equal quadrants. Along the
top of the box, a market share or cash generation is written, and a growth rate or cash use is
written down the left side. On the top left is high market share, and low market share is on the
left. On the left-hand side, high cash use is at the top and low cash use or growth rate is at the
bottom.

Within the diagram, "stars" go in the upper-left quadrant, and "question marks" are put in the
upper-right square. At the bottom, "cash cows" go on the left, and "dogs" are placed on the right.
The diagram visually shows that stars have high market share and a high growth rate, while
question marks have low market share and a high growth rate. On the bottom, cash cows have a
low growth rate but a high market share, and dogs have a low market share and a low growth
rate.

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2
Cr
edit: DeiMosz/Shutterstock

To create a BCG matrix, businesses gather market-share and growth-rate data on their business
units or products. One large square is drawn and is divided into four equal quadrants. Along the
top of the box, a market share or cash generation is written, and a growth rate or cash use is
written down the left side. On the top left is high market share, and low market share is on the
left. On the left-hand side, high cash use is at the top and low cash use or growth rate is at the
bottom.

2
http://www.businessnewsdaily.com/5693-bcg-matrix.html

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Within the diagram, "stars" go in the upper-left quadrant, and "question marks" are put in the
upper-right square. At the bottom, "cash cows" go on the left, and "dogs" are placed on the right.
The diagram visually shows that stars have high market share and a high growth rate, while
question marks have low market share and a high growth rate. On the bottom, cash cows have a
low growth rate but a high market share, and dogs have a low market share and a low growth
rate.

HISTORY

Bruce Doolin Henderson was born in Nashville, Tennessee, on April 30, 1915. He earned an
undergraduate degree in engineering from Vanderbilt University in Nashville and attended
Harvard Business School.3

Bruce joined the Westinghouse Corporation in 1941. He worked there for 18 years, becoming
one of the youngest vice presidents in the company’s history. In 1959, Henderson joined Arthur
D. Little as senior vice president of management services.

It was four years later that Henderson was encouraged by the CEO of the Boston Safe Deposit
and Trust Company to start a consulting department within the bank. He accepted the offer and
started what would eventually become The Boston Consulting Group. During his tenure, BCG
grew from a one-man operation to an international management consulting firm.4

It’s hard to overstate Henderson’s impact on both BCG and business strategy. The former he not
only founded but also shaped through the force of his character, intellect, and vision; “bold” is
perhaps the best way to describe all three. The latter he influenced through his groundbreaking
ideas as well as his relentless—and, for the time, wholly unconventional—focus on helping
clients think and do things differently. Neither would be what it is today without him.

An Early (and Unorthodox) Focus on Strategy

3
https://www.bcgperspectives.com/classics/author/bruce_henderson/
4
https://www.bcgperspectives.com/classics/author/bruce_henderson/

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Henderson had long been fascinated with competition, and he knew that it was only under
pressure from the marketplace that most companies would change long-established ways of
doing business—or hire upstart consulting outfits, for that matter.

As the fledgling consulting division looked for a specialized offering that would help it stand out,
Henderson pushed for strategy. Perhaps the best-known story from BCG’s early history involves
a Saturday retreat in 1965, when Henderson and his colleagues deliberated on the firm’s
positioning. BCG needed something to distinguish itself in a crowded industry. When Henderson
suggested strategy, someone objected that it was too vague. “That’s the beauty of it,” Henderson
responded. “We’ll define it.”5

The anecdote conveys a kind of arbitrariness, but in retrospect the choice of this foundational
idea seems as inevitable as it was extraordinary. For Henderson, strategy was not just a
buzzword—something to attract attention or sell projects. It was a vehicle for changing
executives’ mind-set—especially with respect to how they understood their responsibilities.

Until then, most ambitious American companies had focused mainly on growth. They worked on
expanding sales, establishing responsive administrative structures, modernizing accounting and
controls, building up managerial talent, and boosting marketing. The most significant high-level
move that companies made was diversification, a means to growth that would not trigger
government antitrust concerns. International expansion was another common move.

Henderson was hardly opposed to growth, but he had seen firsthand the inefficiencies that a bias
toward growth could engender. He wanted to streamline companies so they could grow in more
effective ways and focus on areas in which they excelled. The only way to understand where a
company would excel in the long run, he argued, was to compare it with its rivals.

BCG’s focus on strategy also differentiated the company from much larger, more established
competitors. Then as now, many consulting firms made a living by sharing the best practices of
industry leaders with their clients. Focused largely on organization restructuring or incremental
operational improvements, they paid scant attention to competitive differentiation. Henderson
and his small team had far too little client experience to compete credibly as knowledge brokers.

5
https://ceopedia.org/index.php/BCG_growth-share_matrix

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But they could offer services in the new area of strategy, where the established firms had no
track record.

For Henderson, the attention to strategy was as much a personal crusade as a business
calculation. Over the years, he would aspire to bring intellectual rigor to the management
decisions of American business. He aimed at transformative, not incremental, change.

An Original “Influencer”

The early emphasis on strategy helped distinguish the young firm, but just as important to the
development of BCG, especially during its formative years, was Bruce’s intellectual openness
and curiosity.6 Colleagues from those years remember an exciting atmosphere of tireless
exploration and collaborative idea generation.

They also remember his larger-than-life personality, which had a rough edge to it. A true
iconoclast, he never shied away from testing conventional wisdom or questioning the status quo.
Although this did not bother recruits—who were won over by his remarkable intellect and the
almost evangelical fervor he brought to his pioneering enterprise—his bold personality did pose
a challenge to potential clients.

Rather than win over clients directly, Henderson simply took advantage of what he was good at:
ideas. In 1964, he developed a novel approach to marketing a consulting firm: Perspectives was a
series of highly provocative essays on strategy, published in a brochure format small enough to
fit easily in an executive’s coat pocket. Henderson crafted these essays with the help of a full-
time editor who was an early hire. At first, the Perspectives pieces merely excerpted ideas from
other publications that had appeared in less user-friendly formats. But soon Henderson and his
colleagues were introducing their own ideas, which proved far more appealing than what
executives were seeing elsewhere.

It was one thing to offer intriguing ideas, quite another to demonstrate their impact. As
Henderson and his colleagues worked with more and more clients, they identified something
powerful: the experience curve. Although some observers saw this as little more than a broader
version of the familiar learning curve, the experience curve had far more practical power. For

6
https://ceopedia.org/index.php/BCG_growth-share_matrix

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one thing, it shook up the long-held assumption of most industrial executives that costs were
largely constant. For another, it was analytically predictive.

It also gave the emerging focus on strategy an immediate agenda. Companies could regain
competitive advantage by concentrating on products with a large market share—actual or
potential. Greater market share meant greater scale, which led to volume, which meant
experience and, in turn, lower costs.

The next few years brought more ideas that built on the early concepts of the experience curve
and the growth-share matrix, most of them focused at the nexus of production economics,
finance, and market competition. Henderson continued writing pieces for the Perspectives series,
and his style set a benchmark for distilling complex ideas into short, sharp arguments (the New
York Times, in its obituary of Bruce Henderson, referred to him as a “consultant and writer on
business strategy”).

The Decisions That Defined BCG

It wasn’t long before Henderson’s consulting division expanded beyond what Boston Safe
Deposit had expected. In fact, Bruce decided to open an office in Tokyo only three years after
starting the firm. It was the first of many international expansions that would broaden BCG’s
horizons, along with its knowledge and expertise.7

In 1968, as part of a larger reorganization around a holding company (called simply The Boston
Company), the bank spun off the consulting arm as a legally separate but wholly owned
subsidiary. In a nod to Henderson’s growing prominence as a novel thinker, and in accordance
with other consulting firms, his colleagues suggested he call the new outfit Henderson &
Company. Henderson resisted. He recognized that only as a team of engaged and independent
thinkers could the firm have the far-reaching impact to which he aspired. Accordingly, he took a
more collegial approach and called it The Boston Consulting Group.

Soon BCG was doing even better than expected. The firm’s reputation continued to soar, and
BCG opened offices in Munich and Menlo Park. Profits were strong enough to allow the BCG
7
https://ceopedia.org/index.php/BCG_growth-share_matrix

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Employees Trust to pay off the remaining amount due to The Boston Company in 1979, five
years ahead of schedule.8

Then Bruce Henderson did something truly extraordinary. As founder and longtime leader of the
firm, he was in a position to dictate most of the terms for the new organization. He could have
designed an ownership structure that gave him the lion’s share of the firm’s equity and voting
rights. Yet Henderson structured the transaction so that he held only 5 percent of the firm’s
shares for himself. He also gave himself and all the other officers a single and equal vote in the
firm’s decisions.

Henderson’s move was all the more remarkable in light of what 

RELATIVE MARKET SHARE

This indicates likely cash generation, because the higher the share the more cash will be
generated. As a result of 'economies of scale' (a basic assumption of the BCG Matrix), it is
assumed that these earnings will grow faster the higher the share. The exact measure is the
brand's share relative to its largest competitor. Thus, if the brand had a share of 20 percent, and
the largest competitor had the same, the ratio would be 1:1. If the largest competitor had a share
of 60 percent; however, the ratio would be 1:3, implying that the organization's brand was in a
relatively weak position. If the largest competitor only had a share of 5 percent, the ratio would
be 4:1, implying that the brand owned was in a relatively strong position, which might be
reflected in profits and cash flows. If this technique is used in practice, this scale is logarithmic,
not linear.

On the other hand, exactly what is a high relative share is a matter of some debate. The best
evidence is that the most stable position (at least in fast-moving consumer goods markets) is for
the brand leader to have a share double that of the second brand, and triple that of the third.
Brand leaders in this position tend to be very stable—and profitable; the Rule of 123.

8
www.fundinguniverse.com/company-histories/the-boston-consulting-group-history

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The selection of the relative market share metric was based upon its relationship to the
experience curve. The market leader would have greater experience curve benefits, which
delivers a cost leadership advantage.9

Another reason for choosing relative market share, rather than just profits, is that it carries more
information than just cash flow. It shows where the brand is positioned against its main
competitors, and indicates where it might be likely to go in the future. It can also show what type
of marketing activities might be expected to be effective]

MARKET GROWTH RATE

Rapidly growing in rapidly growing markets, are what organizations strive for; but, as we have
seen, the penalty is that they are usually net cash users – they require investment. The reason for
this is often because the growth is being 'bought' by the high investment, in the reasonable
expectation that a high market share will eventually turn into a sound investment in future
profits. The theory behind the matrix assumes, therefore, that a higher growth rate is indicative of
accompanying demands on investment. The cut-off point is usually chosen as 10 per cent per
annum.10 Determining this cut-off point, the rate above which the growth is deemed to be
significant (and likely to lead to extra demands on cash) is a critical requirement of the
technique; and one that, again, makes the use of the growth–share matrix problematical in some
product areas. What is more, the evidence, from fast-moving consumer goods markets at least, is
that the most typical pattern is of very low growth, less than 1 per cent per annum. This is
outside the range normally considered in BCG Matrix work, which may make application of this
form of analysis unworkable in many markets. Where it can be applied, however, the market
growth rate says more about the brand position than just its cash flow. It is a good indicator of
that market's strength, of its future potential (of its 'maturity' in terms of the market life-cycle),
and also of its attractiveness to future competitors. It can also be used in growth analysis.

MISUSE

As originally practiced by the Boston Consulting Group, the matrix was used in situations where
it could be applied for graphically illustrating a portfolio composition as a function of the

9
 Fripp, Geoff."BCG Matrix and the Experience Curve" Guide to the BCG Matrix
10
Fripp, Geoff."BCG Matrix: Where to Draw the Line?" Guide to the BCG Matrix

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balance between cash flows.11 If used with this degree of sophistication its use would still be
valid. However, later practitioners have tended to over-simplify its messages. In particular, the
later application of the names (problem children, stars, cash cows and dogs) has tended to
overshadow all else—and is often what most students, and practitioners, remember.

This is unfortunate since such simplistic use contains at least two major problems:

'Minority applicability'. The cashflow techniques are only applicable to a very limited number of
markets (where growth is relatively high, and a definite pattern of product life-cycles can be
observed, such as that of ethical pharmaceuticals). In the majority of markets, use may give
misleading results.

'Milking cash cows'. Perhaps the worst implication of the later developments is that the (brand
leader) cash cows should be milked to fund new brands. This is not what research into the fast-
moving consumer goods markets has shown to be the case. The brand leader's position is the
one, above all, to be defended, not least since brands in this position will probably outperform
any number of newly launched brands. Such brand leaders will, of course, generate large cash
flows; but they should not be `milked' to such an extent that their position is jeopardized. In any
case, the chance of the new brands achieving similar brand leadership may be slim—certainly far
less than the popular perception of the Boston Matrix would imply.

Perhaps the most important danger12 is, however, that the apparent implication of its four-
quadrant form is that there should be balance of products or services across all four quadrants;
and that is, indeed, the main message that it is intended to convey. Thus, money must be diverted
from `cash cows' to fund the `stars' of the future, since `cash cows' will inevitably decline to
become `dogs'. There is an almost mesmeric inevitability about the whole process. It focuses
attention, and funding, on to the `stars'. It presumes, and almost demands, that `cash cows' will
turn into `dogs'.13

The reality is that it is only the `cash cows' that are really important—all the other elements are
supporting actors. It is a foolish vendor who diverts funds from a `cash cow' when these are
needed to extend the life of that `product'. Although it is necessary to recognize a `dog' when it
11
 the Rule of 123
12
 the Rule of 123
13
www.netmba.com/strategy/matrix/bcg

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appears (at least before it bites you) it would be foolish in the extreme to create one in order to
balance up the picture. The vendor, who has most of his (or her) products in the `cash cow'
quadrant, should consider himself (or herself) fortunate indeed, and an excellent marketer,
although he or she might also consider creating a few stars as an insurance policy against
unexpected future developments and, perhaps, to add some extra growth. There is also a
common misconception that 'dogs' are a waste of resources. In many markets 'dogs' can be
considered loss-leaders that while not themselves profitable will lead to increased sales in other
profitable areas.

FOUR QUADRANTS OF BCG MATRIX


Stars: The business units or products that have the best market share and generate the most cash
are considered stars. Monopolies and first-to-market products are frequently termed stars.
However, because of their high growth rate, stars also consume large amounts of cash. This
generally results in the same amount of money coming in that is going out. Stars can eventually
become cash cows if they sustain their success until a time when the market growth rate
declines. Companies are advised to invest in stars. Stars represent business units having large
market share in a fast growing industry. They may generate cash but because of fast growing
market, stars require huge investments to maintain their lead. 14 Net cash flow is usually modest.
SBU’s located in this cell are attractive as they are located in a robust industry and these business
units are highly competitive in the industry. If successful, a star will become a cash cow when
the industry matures.

Strategies for Stars: All types of marketing, sales promotion and advertising strategies are used
for Stars. This is because in cash cow, already these strategies have been used and they have
resulted in the formation of a cash cow. Similarly in Stars, because of the high competition and
rising market share, the concentration and investment needs to be high in marketing activities so
as to increase and retain market share.

Cash cows: Cash cows are the leaders in the marketplace and generate more cash than they
consume. These are business units or products that have a high market share, but low growth
prospects. According to NetMBA, cash cows provide the cash required to turn question marks
into market leaders, to cover the administrative costs of the company, to fund research and
14
www.thebcgmatrix.com/bcg-matrix-theory/bcg-matrix-and-its-four-quadrants

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development, to service the corporate debt, and to pay dividends to shareholders. Companies are
advised to invest in cash cows to maintain the current level of productivity, or to "milk" the gains
passively.15 Cash Cows represents business units having a large market share in a mature, slow
growing industry.16 Cash cows require little investment and generate cash that can be utilized for
investment in other business units. These SBU’s are the corporation’s key source of cash, and are
specifically the core business. They are the base of an organization. These businesses usually
follow stability strategies. When cash cows loose their appeal and move towards deterioration,
then a retrenchment policy may be pursued.

Strategies for cash cows: The cash cows are the most stable for any business and hence the
strategy generally includes retention of the market share. As the market is not growing,
acquisition is less and retention is high. Thus customer satisfaction programs, loyalty programs
and other such promotional methods form the core of the marketing plan for a cash cow product
or business unit.17

Dogs: Also known as pets, dogs are units or products that have both a low market share and a
low growth rate. They frequently break even, neither earning nor consuming a great deal of cash.
Dogs are generally considered cash traps because businesses have money tied up in them, even
though they are bringing back basically nothing in return. These business units are prime
candidates for divestiture.18  Dogs represent businesses having weak market shares in low-growth
markets. They neither generate cash nor require huge amount of cash. Due to low market share,
these business units face cost disadvantages. Generally retrenchment strategies are adopted
because these firms can gain market share only at the expense of competitor’s/rival firms. These
business firms have weak market share because of high costs, poor quality, ineffective
marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if there is fewer
prospects for it to gain market share. Number of dogs should be avoided and minimized in an
organization.

15
opentuition.com/.../what-are-the-four-quadrants-of-a-bcg-matrix-and-what-market-sh..
16
www.thebcgmatrix.com/bcg-matrix-theory/bcg-matrix-and-its-four-quadrants
17
opentuition.com/.../what-are-the-four-quadrants-of-a-bcg-matrix-and-what-market-sh..
18
www.thebcgmatrix.com/bcg-matrix-theory/bcg-matrix-and-its-four-quadrants

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Strategies for Dogs: Depending on the amount of cash which is already invested in this
quadrant, the company can either divest the product altogether or it can revamp the product
through rebranding / innovation / adding features etc. However, moving a dog towards a star or a
cash cow is very difficult. It can be moved only to the question mark region where again the
future of the product is unknown. Thus in cases of Dog products, divestment strategy is used.

Question marks: These parts of a business have high growth prospects but a low market share.
They are consuming a lot of cash but are bringing little in return. In the end, question marks, also
known as problem children, lose money. However, since these business units are growing
rapidly, they do have the potential to turn into stars. Companies are advised to invest in question
marks if the product has potential for growth, or to sell if it does not. 19 Question marks represent
business units having low relative market share and located in a high growth industry. They
require huge amount of cash to maintain or gain market share. They require attention to
determine if the venture can be viable. Question marks are generally new goods and services
which have a good commercial prospective. There is no specific strategy which can be adopted.
If the firm thinks it has dominant market share, then it can adopt expansion strategy, else
retrenchment strategy can be adopted. Most businesses start as question marks as the company
tries to enter a high growth market in which there is already a market-share. If ignored, then
question marks may become dogs, while if huge investment is made, then they have potential of
becoming stars.

Strategies for Question marks: As they are new entry products with high growth rate, the
growth rate needs to be capitalized in such a manner that question marks turn into high market
share products. New Customer acquisition strategies are the best strategies for converting
Question marks to Stars or Cash cows. Furthermore, time to time market research also helps in
determining consumer psychology for the product as well as the possible future of the product
and a hard decision might have to be taken if the product goes into negative profitability.20

19
opentuition.com/.../what-are-the-four-quadrants-of-a-bcg-matrix-and-what-market-sh..
20
www.thebcgmatrix.com/bcg-matrix-theory/bcg-matrix-and-its-four-quadrants

18
As BCG founder Bruce Henderson wrote in 1968, "all products eventually become either cash
cows or pets [dogs]. The value of a product is completely dependent upon obtaining a leading
share of its market before the growth slows."

ADVANTAGES OF BCG MATRIX


 The BCG-Matrix is helpful for managers to evaluate balance in the companies’s current
portfolio of Stars, Cash Cows, Question Marks and Dogs.
 BCG-Matrix is applicable to large companies that seek volume and experience effects.
 The model is simple and easy to understand.
 It provides a base for management to decide and prepare for future actions.
 If a company is able to use the experience curve to its advantage, it should be able to
manufacture and sell new products at a price that is low enough to get early market share
leadership. Once it becomes a star, it is destined to be profitable.21
 The BCG is an effective management tool and it offers a good framework for resource
allocation among various units. This enables the managers to compare several business units
whenever they want. It simplifies many business factors through showing employees the market
share as well as growth rate and how to use them to create new strategies.22
 The BCG allows for the making of comparisons so as to measure the growth and
development rate of a company against the average growth rate in that specific industry. In
addition, this particular matrix is also enjoyable to use, encouraging better decision making.
Large organizations that are normally in need of effective decision making can benefit a lot from
using BCG matrix, especially those seeking better resource management.
Nevertheless, the BCG model only takes into account two dimensions, which are growth rate and
market share. This might tempt the management to focus on a certain product or divest
prematurely.23
 Even though BCG matrix may be among the oldest matrices ever formulated, it is also the
most common and best known matrix taught all over the world. There are forums on the internet
where individuals share their ideas on the best methods of using BCG matrix because of its
popularity. This means that those looking to use it will never lack assistance and support. The
21
www.managementstudyguide.com/bcg-matrix.htm
22
www.managementstudyguide.com/bcg-matrix.htm
23
Benefits Of BCG | Benefits Of http://benefitof.net/benefits-of-bcg/#ixzz4Nee6r03e

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BCG still remains a quick and beneficial guide for resource allocation and ensuring better
profits.24

LIMITATIONS OF BCG MATRIX


 It neglects the effects of synergies between business units.
 High market share is not the only success factor.
 Market growth is not the only indicator for attractiveness of a market.
 Sometimes Dogs can earn even more cash as Cash Cows.
 The problems of getting data on the market share and market growth.
 There is no clear definition of what constitutes a “market”.
 A high market share does not necessarily lead to profitability all the time.
 The model uses only two dimensions – market share and growth rate. This may tempt
management to emphasize a particular product, or to divest prematurely.25
 A business with a low market share can be profitable too.
 The model neglects small competitors that have fast growing market shares.
 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 profitability26.
 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.27

24
benefitof.net/benefits-of-bcg/
25
www.bcg-matrix.com/benefits-limitations-bcg-matrix/
26
www.bcg-matrix.com/benefits-limitations-bcg-matrix/
27
www.bms.co.in/advantages-and-limitations-of-bcg-matrix/

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CASE STUDIES
Practical Use Tips

The BCG matrix can be useful to companies if applied using the following general steps.

Step 1 – Choose the Unit. Strategic Business Units, individual brands, product lines or the firm
as a whole are all areas that can be analyzed using the BCG matrix. The chosen unit drives the
entire analysis and key definitions. The market, industry, competitors and position will all be
based on the chosen unit.28

Step 2 – Define the Market. Following the choice of the unit or area to be analyzed, the most
important stage for the rest of the matrix is the definition of the market. An incorrectly defined
market will lead to an incorrect classification of the unit. A Mercedes-Benz analyzed in a
passenger vehicle market will be a dog with a small market share. However, analyzed within a
luxury car market, it will be a cash cow.

Step 3 – Calculate Relative Market Share. At this stage, the relative market share for the
chosen unit needs to be calculated. This can be done in terms or revenues or marker share. The
formula used here us a division of the selected brand’s market share or revenues by the market
share or revenues of the biggest competitor in the industry. The result in plotted on the x-axis.

Step 4 – Calculate Market Growth Rate. Online industry reports can be used to find the rate of
growth for the industry. If this is not possible, then it can be estimated by looking at the average
revenue growth of the leading firms in the industry. This measurement is a percentage and is
plotted on the y-axis.

Step 5 – Draw Circles on the Matrix. Once all the measures are calculated, they can be put
onto the matrix. This can be done by drawing a circle for each brand within a unit, or all the
brands in a company. The size of each circle should correspond to business revenue generated by
the brand.

EXAMPLES

28
www.thebcgmatrix.com/bcg-matrix-theory/bcg-matrix-and-its-four-quadrants

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Nestle

According to an analysis posted here, the BCG matrix analysis for Nestle reveals some
interesting perspectives. A global multinational in the food and beverage industry, the Swiss
company is the 69thhighest revenue producer in the world. Over 8000 brands fall within its
umbrella and are as widespread as bottled water and pet food. The company announced plans to
sell off under-performing brands which were consistently showing poor sales

 Question Marks – Here, the question marks have a low market share within a high
growth market. The product mentioned here requires an influx of investment to capitalize
on potential segments. This investment is however, not likely to yield too much return
investment.29
 Stars – These brands have a high share in a high growth market. Nestle’s varied mineral
water is in this quadrant. The brands in this are require investment to maintain their
position and differentiation in both mature and emerging markets.30
 Dogs – The Nestle products in this category have a lower market share in a low growth
market. An example of this is a lean cuisine unit and weight loss management brands
which did not take off outside the US. A sports performance and nutrition brand called
PowerBar is also confirmed to be divested by the company most likely due to poor sales
in a saturated market. These products generate enough revenue to sustain themselves but
are not exciting not major sources of revenues.
 Cash Cows – These brands are important because of their cash generating potential. This
means that they have a higher market share in a slow-growth industry. Very little
investment is needed by these brands and funds generated from them are used to fuel
Stars or Question Marks.

29
www.thebcgmatrix.com/bcg-matrix-theory/bcg-matrix-and-its-four-quadrants
30
www.thebcgmatrix.com/bcg-matrix-theory/bcg-matrix-and-its-four-quadrants

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Success Sequence in the BCG-Matrix
The Success sequence of the BCG matrix happens when a question mark becomes a Star and
finally it becomes a cash cow. This is the most wanted sequence which really gives a boost to the
companies profits and growth. The success sequence unlike the disaster sequence is entirely
dependent on the right decision making.

Disaster sequence in the BCG-Matrix 


The Disaster sequence of the BCG matrix happens when a product which is a cash cow, due to
competitive pressure might be moved to a star. It fails out from the competition and it is moved
to a question mark and finally it may have to be divested because of its low market share and low
growth rate. Thus the disaster sequence might happen because of wrong decision making. This
sequence affects the company as a lot of investments are lost to the divested product. Along with
this the money coming in from the cash cow which is used for other products too is lost.

Strategic Implications

The importance of achieving a balanced Product / Market portfolio cannot be underestimated,


but what exactly constitutes a winning portfolio is more difficult to determine.

A policy of continuous product development resulting in the steady launch of new products is
essential to corporate health. It therefore follows that a portfolio in equilibrium will include a
number of 'Question Mark' and 'Star' products, though the number of 'Question Marks' should be
greater than 'Stars' to allow for market failures. To achieve the required balance, branded
products with strong market positions can either be acquired or developed in-house. The
frequency at which new products should be developed will be different for each market and
industry but will be linked to:

 Rate at which competitors launch new products


 Market’s history and current trends for product development

23
 Market’s / Industry’s typical product life cycles.
 Scope for actual or perceived product differentiation.
There also needs to be sufficient cash rich product to generate a cash surplus. A healthy portfolio
will have a number of 'Cash Cow' products (minimum of two) to reduce the obvious risks
associated with the business being dependent upon the sales of a single product. Ideally there
should be relatively few 'Dog' products.31

A portfolio with all of the products positioned in the bottom of the matrix where all the
company's products are sold into low growth markets does not represent a balanced portfolio.
Although it does not represent an immediate potential threat to the health of the business it
should be cause for concern in the medium to long term. 32A preponderance of products in the
lower half of the matrix suggests the possibility of either or a combination of the following:

 A dearth of new 'Question Mark' and 'Star' products being launched.


 Incorrect or 'low' market growth rates specified for the company’s segments.

Based upon the portfolio distribution it may be possible to determine the company's overall
strategic intent as follows:

1.  Hold Strategy

To enjoy continued strong cashflow. Relatively high market


share / low market growth rate ‘Cash Cow’ opportunities
should be able to maintain market share at or around existing
levels.33

31
www.thebcgmatrix.com/bcg-matrix-theory/bcg-matrix-and-its-four-quadrants
32
www.thebcgmatrix.com/bcg-matrix-theory/bcg-matrix-and-its-four-quadrants
33
www.strategicmanagementinsight.com › Strategy Tools

24
 

2.  Build Strategy

To grow the business. Relatively low relative market share /


high market growth rate ‘Question Mark’ opportunities need
investment in order to grow.34

 
3.  Harvest Strategy
To develop short term cashflow irrespective of the long term
damaging effect to the product or business. This strategy is
appropriate for any weak products where disposal in the form
of a sale is unavailable or not preferred due to high exit
barriers.35

34
www.strategicmanagementinsight.com › Strategy Tools
35
www.strategicmanagementinsight.com › Strategy Tools

25
 

4.  Divest Strategy

To change the capital of the business and allow resources to be


used elsewhere.36

36
www.strategicmanagementinsight.com › Strategy Tools

26
Corporate ‘A’ BCG matrix

Brand Revenues % of Largest Your Relative Market


corporate rival’s brand’s market growth
revenues market share market share share rate

Brand $500,000 54% 25% 25% 1 3%


1

Brand $350,000 38% 30% 5% 0.17 12%


2

Brand $50,000 6% 45% 30% 0.67 13%


3

Brand $20,000 2% 10% 1% 0.1 15%


4

27
This example was created to show how to deal with a relative market share higher than 100%
and with negative market growth.

Corporate ‘B’ BCG matrix

Brand Revenues % of Largest Your Relative Market


corporate rival’s brand’s market growth
revenues market share market share share rate

Brand $500,000 55% 15% 60% 1 3%


1

Brand $350,000 31% 30% 5% 0.17 -15%


2

Brand $50,000 10% 45% 30% 0.67 -4%

28
Corporate ‘B’ BCG matrix

Brand Revenues % of Largest Your Relative Market


corporate rival’s brand’s market growth
revenues market share market share share rate

Brand $20,000 4% 10% 1% 0.1 8%


4

BCG Matrix applied on APPLE Inc.

29
Question Mark- Apple TV makes a bit of money, but it’s not reaching it’s potential. If Apple can
solve a few ecosystem problems, they could really own the TV space. There are tons of rumors
of an Apple TV product that might just maybe dominate like the iPod/iPhone/i Pad

Rising Star -The iPhone and i Pad are rising stars. They can’t make enough of them. These
products are so successful that their growth potential is really unknown. 

Cash Cows-The Mac Books are the portables of choice right now. The all-in-one i Mac is in that
cash cow place. They make a lot of them, but computing is quickly shifting to portable and
mobile so they are also in the dog section.

Dogs- The big multi-part desktop is fading away. Hard drive based iPods peaked a while ago as
well and there are just so may competitors that can create a simple product such as an i pod now.
Apple's Macs could be considered in the dog category as Apple is not a market leader in this
market segment as there competitors have the desktop market in a monopoly. 

CONCLUSION
BCG Matrix is tool to understand the situation of a compny in market and for stretegies for benefits of
the company. It shows the comparison of companies by putting them into four categories which are
determined by market share and market gowth. So planning can be done by checking that company falls
in which quadrant of matrix.

Star Strategy:
 Invest profits for future growth and for earning more of market share and profits. 
Cash Cow Strategy:
 Use profits to finance new products and growth elsewhere. 
Question Mark Strategy:
 Either invest heavily in order to push the products to star status, or divest in order to avoid it
becoming a Dog.
Dog Strategy:

30
 Either invest to earn market share or consider disinvesting. Thus the BCG matrix is the best way
for a business portfolio analysis. The strategies recommended after BCG analysis help the firm
decide on the right line of action and help them implement the same

BIBLIOGRAPHY
www.managementstudyguide.com

www.bcgmatrix.com

www.businessnewsdaily.com

www.netmba.com

www.stretegicmanagement.com

www.scribd.com

www.valuebasedmanagement.com

www.freemanagement.com

www.benefitsof.com

www.bms.com

www.reference.com

www.cleverism.com

www.managementstretegicthinker..com

www.mbatools.com

Fundamentals of Management – Meenakshi Gupta

Fundamentals of Management – Oxford Publications

Fundamentals of Management – Stephen p robbins

31

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