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HAPTER NO: 1
INTRODUCTION
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1.1 BACKGROUND
In a well diversified business, there are mainly units with different profitability. Similarly,
in a business there may be many products in different segment, and a business has to do a
portfolio analysis of various units it is handling and wide product range.
BCG growth share matrix developed by Boston consulting group of USA and popularly
known as BCG matrix takes a two dimensional view: market growth rate and relative market
share. Each dimension is divided in to two degrees: high and low.
HISTORY
In the 1970s, BCGs experience-curve work led to an insight that had a significant impact
on business thinking. If rapid growth in market share was as important as the curve suggested,
then the usual approach to resource allocation- in which each business unit funded its own
growth- seemed a recipe for failure.
Businesses with low market share but high growth potential would never generate enough
cash to win the race down the experience curve. Those with high market share but few chances
for growth would generate far more cash than they could use productively.
BCG developed a simple conceptual framework, named the growth share matrix, to help
corporate managers determine when they should consider using profits from cash cow
businesses to fund growth in other businesses.
So great was the initial success of BCG matrix that for the greater part of two decades it
became the standard approach to capital allocation in multi-sector, multi-segment companies.
Star, Dogs, Cash Cows and Question Marks have become firmly embedded in the language of
business.
Although the more sophisticated capital markets and competitive landscape of the late
1980s and 1990s make the growth share matrix less central, it continues to be used as a primer in
the principles of portfolio management.
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The growth share matrix, BCG matrix (Boston consulting group analysis) is a chart that
had been created by Bruce Henderson for the Boston consulting group in 1970 to help
corporation with analyzing their business units or product lines. This help the company allocate
resources and is used as an analytical tool in brand marketing, product management, strategic
management and portfolio analysis.
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CHAPTER NO: 2
CONCEPTUAL FRAMEWORK
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With headquarters at Vevey, Switzerland and established in 1866, Nestle has growth today to be
the worlds biggest food and beverages company.
Established in the strong foundation of growth through innovation and renovation, the company
is known today by its several strong brands which are dominating the markets the world over.
Nestle India is a subsidiary of Nestle S.A. of Switzerland. With six factories and a large number
of co-packers.
Nestle India is a vibrant company offering a number of products in the Indian market. In the
first nine months of 2010, it achieved strong growth of around 21%
A number of brands are offered by the company in the country of which while some have
already established a strong hold, many others exhibit enormous prospects to dominate the
market and are only waiting for a favourable opportunity or appropriate and sizeable promotional
campaign by the company
With headquarters at Vevey, Switzerland and established in 1866, Nestle has growth
today to be the worlds biggest food and beverages company.
Established in the strong foundation of growth through innovation and renovation, the
company is known today by its several strong brands which are dominating the markets
the world over.
Nestle India is a subsidiary of Nestle S.A. of Switzerland. With six factories and a large
number of co-packers.
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Nestle India is a vibrant company offering a number of products in the Indian market. In
the first nine months of 2010, it achieved strong growth of around 21% .
A number of brands are offered by the company in the country of which while some have
already established a strong hold, many others exhibit enormous prospects to dominate
the market and are only waiting for a favorable opportunity or appropriate and sizeable
promotional campaign by the company
Riding on the growth of its power brands, Nestle has extended its dominance in food
business in India as well.
The present exercise is an attempt to analyze the position of the different brand offered by
Nestle India.
BCG matrix of Nestle and all the different brands offered by Nestle in India have been
analyzed along with a critical insight and also specific suggestion have been made
therein.
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The beauty of BCG Matrix, a Matrix developed by a group known as Boston Consulting
Group, USA, is that it seeks to place the different products of an organization in different
grids such as to analyze them in a comparative manner in terms of profitability or in
terms of
(a) Percentage growth in sales and
(b) Market share position, to be exact. Thus
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These classes have a different meaning attached to them and can be represented on the
matrix .
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STARS:Businesses which have high growth rate and high market share are called stars. Such
businesses generate as well as use large amount of cash. The stars generate high profits
and represent the best investment opportunities for growth. This cell corresponds closely
to the growth phase of the product life cycle (PLC).The stars are market leaders and are
usually able to generate cash to maintain their high market share. When their market
growth rate slows, the stars become cash cows.
The main features of stars are:
High industry growth rate
High market share
The strategy for stars may be growth strategy. The firm may undertake various activities such
as:
R & D to introduce better
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CASH COWS:The business with low growth rate and high market share are classified in the quadrant.
High market share leads to high generation of cash and profits. The low rate of growth of
the business implies that the cash demand for the business be low. Thus cash cow normal
generates cash surplus. Cows can be milked for cash to help to provide cash required for
running other diverse operations of the company. Cash cows provide financial bases for
the company. These businesses which generate large amount of cash but their rate of
growth is slow. In terms of PLC, these are generally mature businesses which are reaping
the benefits of the experience curve. Cash cows are often former stars and can be
valuable in a portfolio because they can be milked to provide cash for other riskier and
struggling business.
The main features of cash cows are:
Low industry growth
High market share
The company may adopt stability strategy, various activities may be undertaken such as:
Retentive advertising to maintain customer loyalty.
Guarantees and warranties depending upon the nature of product
Introduction of new models or designs including, smaller packages to generate more
sales.
EXAMPLE OF CASH COW PRODUCTS OF NESTLE: caralac
QUESTION MARK:Question marks are businesses with low market share but businesses have high growth
rate. Because of their high growth, the cash requirement is high, but due to their low
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market share, the cash generated is low. As the business growth rate is high, the strategic
option would be to invest more to gain market share, pushing from low share to high.
Hence the business can move to star quadrant, and subsequently has the potential to
become cash cow, when the business growth rate reduces to a low level. When the
company cannot improve its low competitive position, the options available would be to
divest the business. Businesses with high industry growth but low market share for a
company are question or problem children. They require large amount of cash to maintain
or gain market share. In terms of PLC, the question mark is usually product in
introduction stage. Question marks are usually new products or services which have
good commercial potential. Question marks may become stars if enough investment is
made, or they may become dogs if ignored. There are several industries in India where
many companies find themselves holding businesses which are question marks.
The main features of question marks are:
High industry growth
Low market share
The firm may adopt growth strategy for question marks. Various activities may be
undertaken to transform question marks into stars:
EXAMPLE OF QUESTION MARK PRODUCTS OF NESTLE: Milo, nestle kitkat/barone/munch, maggiesauces,magi soups, nestle
butter,nesvita,milk
DOGS:-
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Those businesses which are related to slow-growth industries and where a company has a
low relative market share are termed as dogs. They neither generate nor require large
amount of cash. In other words if the business growth rate is low and the companys
relative market share also low, the business is classified as dog. The low market share
normally means poor profits. As the growth rate is also low, attempts to increase market
share would demand prohibitive investments. Thus the cash required to maintain
competitive position often exceeds the cash generated. There is a net negative cash flow.
Under such circumstances, the strategic solution is to liquidate the business. In term of
PLC, the dogs are usually products in late maturity or decline stage.
The main features of dogs are:
Low industry growth
Low market share
The company may adopt retrenchment strategy. The company may adopt divestment
strategy relating to the business unit or product line, or close down the unviable business.
EXAMPLE OF DOG PRODUCT OF NESTLE: Nestea, milkybar,nestle crunch
Not only does it have a high market share but it growth rate is also significantly high.
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It has witnesses quite a long hold in its market share with its sales increasing on a
continuous basis for almost more than one and a half decade.
Its different variants have kept competitors at bay and its finds a place easily at almost
every general or provisional store in the Indian market.
WHY?
These might have not seriously taken promotional drive.
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Pickles being a non-durable product and their success essentially related to the taste of
the consumer, are not one of the core competencies of Nestle, which is better known to
introduce standard taste in the country and get them approved by the consumers.
Thus it is better advised to disinvest in the business and focus on other brands.
Facts do not favor Nestle to continue with its butter.
Instead of no response, a significant number of retailers are of the opinion that Nestle
Butter seems to be rejected by the consumers for the reason that its taste does not suit the
Indian psyche.
Thus it is advisable for Nestle to discontinue with butter, as it did with its water brand,
Pure Life. Also, it would be better to concentrate on other brand than to go in for a head
on collision with Amul, the market leader, which is inevitable on account of the same
market which both the products cater to.
Product: Milky Bar
Position: Dogs
Reasons for present positioning:
It become quite popular in and around the year 2000 but it never reached the stage of a
power brand.
Primary tried by the Indian consumer as a craze which laid in trying the first no brown
chocolate, Nestle Milky bar was a sweet chocolate with cream color. Thus the primary
acceptance of Milky bar was not based on its core qualities but on the basis of certain
peculiarities which it contained, differentiating it from other products in the same line.
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Milky Bar, as a chocolate, though has a growing market, yet it has been placed as a dog
on account of the inherent lack of core quality which makes it generic with chocolates.
This was the main reason why it was never considered a competitor by other chocolate
manufactures and the consumers also treated it so.
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BCG analysis assumes that profits depend on growth and market share. The
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attractiveness
of an industry may be different from its simple growth rate and the firms competitive
position may not be reflected in its market share.
2. Difficulty in determining market share:
There is a heavy dependence on the market share of a business as an indicator of its
competitive strength. The calculation of market share is strongly influenced by the way the
business activity and the way the total market are defined. In case of complex and
interdependent industries, it may also be quite difficult to determine the market share based
on the sales turnover of the final products only.
3. Disregard for human aspect:
The BCG analysis, while considering different business does not take in to consideration the
human aspect of running an organization. Cash generated within a business unit may come to
be symbolically associated with the power of the concerned manager. As such the manger
running a cash cow business may be reluctant to a part with the surplus cash generated by
this unit. Similarly, the workers of a dog business which has been decided to be divested may
react strongly against in the ownership. They may consider the divesture as a threat to their
livelihood. Thus BCG analysis could throw up strategic options which may or may not be
easy to implement.
4. Variety of influences:
Long term profitability is subject to a variety of influences not directly tied to growth and
market share. This fact has not been considered adequately by the four-cell matrix. For
example, in many industries, organizations with low market share are able to earn high profit
and sometimes outperform large rivals. Similarly, high market share business in low growth
market may not generate high cash surplus as the competition is likely to be stiff and profit
may squeeze.
5. Other dimension:
The four cell matrix gives consideration only to relative market share position and growth of
sales. Though, these are important dimensions but other dimensions are equally important
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from strategic point of view. These may be stage of product, strategic posture of different
businesses, presence of competitive position emerging threats and opportunities, capital
requirements, size of market etc.
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CHAPTER NO:3
ANALYSIS
Number of Respondents
Yes
100%
No
0%
B) No
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products
Yes
No
100%
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B)low cost
Type of biscuits
Number of respondents
Branded
80%
Low cost
20%
Type of product
Branded
low cost
20%
80%
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B) Once In A Week
C) Alternate Days
D) Every Day
Number of respondents
Once In A Month
7%
Once In A Week
40%
Alternate Days
20%
Every Day
33%
40%
33%
20%
Number of respondents
7%
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Number of respondents
Price
33%
Brand Name
67%
Buying factors
80%
70%
67%
60%
50%
Number of respondents
40%
30%
33%
20%
10%
0%
Price
Brand Name
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B) amul
D) Others
Number of respondents
nestle
47%
amul
20%
mahanand
6%
Others
27%
27%
47%
nestle
amul
mahanand
Others
6%
20%
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6. If nestle is not available in the shop will you look for it in the next shop
A) Yes
B) No
nestle is not available in the shopyou look for it in the next shop
Number of respondents
Yes
60%
No
40%
nestle is not available in the shop you look for it in the next shop
40%
Yes
No
60%
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7. If the retailer gives you another brand product instead of nestle, will you buy
A) Yes
B) No
Number of respondents
53%
No
47%
53%
52%
51%
50%
53%
49%
48%
47%
47%
46%
45%
44%
Yes
No
Number of respondents
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nestle
amul
mahanand
Various brand
Number of respondents
nestle
40%
amul
47%
mahanand
13%
Number of respondents
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
47%
40%
Number of respondents
13%
nestle
amul
mahanand
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From the survey concluded that 100% of the respondents eat nestle products
80% of the respondents normally prefer branded one and the remaining prefer low cost
product
From the total number of respondents 40% eat nestle product once in a week and the
remaining respondents answered that 33%,20% and 7% respondents eat nestle product every
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CHAPTER NO: 6
APPENDIX
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4.1 ANNEXURE-QUESTIONNAIRE
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Name: ______________________________
Address: _____________________________
Email Id: ____________________________
Mobile Number:__________________
B) No
B)low cost
A) Once In A Month
B) Once In A Week
C) Alternate Days
D) Every Day
nestle
Amul
Mahanand
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Flavors
4.2 BIBLIOGRAPHY
Strategic management publication MananPrakashan
Strategic management publication VipulPrakashan
4.3 WEBLIOGRAPHY
www.cimaglobal.com
www.accaglobal.com
www.managementmania.com
www.bcg.com
www.cesc.co.in
www.marketing91.com
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