Boston Consulting Group (BCG-) matrix

Growth-share matrix
From Wikipedia, the free encyclopedia
The BCG matrix (aka B.C.G. analysis, BCG-matrix, Boston Box, Boston
Matrix, Boston Consulting Group analysis, portfolio diagram) is a chart
that had been created by Bruce Henderson for the Boston Consulting
Group in 1968 to help corporations with analyzing their business units
or product lines. This helps the company allocate resources and is used
as an analytical tool in brand marketing, product management,
strategic management, and portfolio analysis.[1]

Folio plot of example data set

Like Ansoff's matrix, the Boston Matrix is a well known tool for the
marketing manager. It was developed by the large US consulting group
and is an approach to product portfolio planning. It has two controlling
aspect namely relative market share (meaning relative to your
competition) and market growth.
You would look at each individual product in your range (or portfolio)
and place it onto the matrix. You would do this for every product in the
range. You can then plot the products of your rivals to give relative
market share.
This is simplistic in many ways and the matrix has some
understandable limitations that will be considered later. Each cell has
its own name as follows.
Dogs. These are products with a low share of a low growth market.
These are the canine version of 'real turkeys!'. They do not generate
cash for the company, they tend to absorb it. Get rid of these products.
Cash Cows. These are products with a high share of a low growth
market. Cash Cows generate more than is invested in them. So keep
them in your portfolio of products for the time being.
Problem Children. These are products with a low share of a high
growth market. They consume resources and generate little in return.
They absorb most money as you attempt to increase market share.

Stars. These are products that are in high growth markets with a
relatively high share of that market. Stars tend to generate high
amounts of income. Keep and build your stars.

Look for some kind of balance within your portfolio. Try not to have any
Dogs. Cash Cows, Problem Children and Stars need to be kept in a kind
of equilibrium. The funds generated by your Cash Cows is used to turn
problem children into Stars, which may eventually become Cash Cows.
Some of the Problem Children will become Dogs, and this means that
you will need a larger contribution from the successful products to
compensate for the failures.
Problems with The Boston Matrix.
There is an assumption that higher rates of profit are directly related
to high rates of market share. This may not always be the case. When
Boeing launches a new jet, it may gain a high market share quickly but
it still has to cover very high development costs. It is normally applied
to Strategic Business Units (SBUs). These are areas of the business
rather than products. For example, Ford owns Landrover in the UK. This
is an SBU not a single product. There is another assumption that SBUs
will cooperate. This is not always the case. The main problem is that it
oversimplifies a complex set of decisions.

WWW.Vectorstudy.Com

Porter five forces analysis

Porter's five forces analysis is a framework for industry analysis and business
strategy development developed by Michael E. Porter of Harvard Business School in
1979 . It uses concepts developed in Industrial Organization (IO) economics to
derive 5 forces that determine the competitive intensity and therefore attractiveness
of a market. Porter referred to these forces as the microenvironment, to contrast it
with the more general term macroenvironment. They consist of those forces close to
a company that affect its ability to serve its customers and make a profit. A change
in any of the forces normally requires a company to re-assess the marketplace.
Strategy consultants use Porter's five forces framework when making a qualitative
evaluation of a firm's strategic position. The framework is textbook material for
modern business studies and therefore widely known.
Porter's Five Forces include three forces from 'horizontal' competition: threat of
substitute products, the threat of established rivals, and the threat of new entrants;
and two forces from 'vertical' competition: the bargaining power of suppliers,
bargaining power of customers.
Each of these forces has several determinants:

A graphical representation of Porters Five Forces

The threat of substitute products

The existence of close substitute products increases the propensity of customers to
switch to alternatives in response to price increases (high elasticity of demand).

buyer propensity to substitute

relative price performance of substitutes

buyer switching costs

perceived level of product differentiation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms. The results is many new
entrants, which will effectively decrease profitability. Unless the entry of new firms
can be blocked by incumbents, the profit rate will fall towards a competitive level
(perfect competition).

the existence of barriers to entry (patents, rights, etc.)

economies of product differences

brand equity

switching costs or sunk costs

capital requirements

access to distribution

absolute cost advantages

learning curve advantages

expected retaliation by incumbents

government policies

The intensity of competitive rivalry

For most industries, this is the major determinant of the competitiveness of the
industry. Sometimes rivals compete aggressively and sometimes rivals compete in
non-price dimensions such as innovation, marketing, etc.

number of competitors
rate of industry growth

intermittent industry overcapacity

exit barriers

diversity of competitors

informational complexity and asymmetry

fixed cost allocation per value added

level of advertising expense

The bargaining power of customers

Also described as the market of outputs. The ability of customers to put the firm
under pressure and it also affects the customer's sensitivity to price changes.

buyer concentration to firm concentration ratio

bargaining leverage

buyer volume

buyer switching costs relative to firm switching costs

buyer information availability

ability to backward integrate

availability of existing substitute products

buyer price sensitivity

price of total purchase

RFM Analysis

The bargaining power of suppliers

Also described as market of inputs. Suppliers of raw materials, components, and
services (such as expertise) to the firm can be a source of power over the firm.
Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for
unique resources.

supplier switching costs relative to firm switching costs

degree of differentiation of inputs

presence of substitute inputs

supplier concentration to firm concentration ratio

threat of forward integration by suppliers relative to the threat of backward

integration by firms

cost of inputs relative to selling price of the product

This 5 forces analysis is just one part of the complete Porter strategic models. The
other elements are the value chain and the generic strategies.