The BCG Matrix Reaches Further Behind Product Mix Marketing Essay

Published Date: 23 Mar 2015

It is also called as BCG model which link ups to marketing and it is a prototype well-known for portfolio management tool, which is used for product life cycle. It often used as to prioritize that which products within company product mix get more funding and attention.

It is developed by Bruce Henderson of the Boston Consulting Group in the early 1970's.

based on classification of products into four categories based on combinations of market growth and market share relative to the largest competitor.

Each product has its product life cycle, and each stage in product's life-cycle represents a different profile of risk and return. In general, a company should maintain a balanced portfolio of products. Having a balanced product portfolio includes both high-growth products as well as low-growth products.

A high-growth product is for example a new one that we are trying to get to some market. It takes some effort and resources to market it, to build distribution channels, and to build sales infrastructure, but it is a product that is expected to bring the gold in the future. An example of this product would be an iPod.

A low-growth product is for example an established product known by the market. Characteristics of this product do not change much, customers know what they are getting, and the price does not change much either.

This product has only limited budget for marketing.

The is the milking cow that brings in the constant flow of cash. An example of this product would be a regular Colgate toothpaste.

But the question is, how do we exactly find out what phase our product is in, and how do we classify what we sell?

Furthermore, we also ask, where does each of our products fit into our product mix? Should we promote one product more than the other one?

The BCG matrix can help with this.

The BCG matrix reaches further behind product mix.

Knowing what we are selling helps managers to make decisions about what priorities to assign to not only products but also company departments and business units

What is the BCG matrix and how does the BCG model work?

Placing products in the BCG matrix results in 4 categories in a portfolio of a company:

STARS (High Growth & High Market Share)

Have high market share in a growing market

They are the leaders in the business, but need a lot of support for promotion a placement

If market share is held in reserve they are likely to grow into cash cows

QUESTION MARKS (High Growth & Low Market Share)

These products are in growing markets but have low market share

New products where buyers have yet to discover them

The marketing strategy should be developed as to get markets to adopt these products

They have high demands and low returns due to low market share

If they do not increase their market share they become dogs quickly

To handle them is to either invest heavily in them to gain market share or to sell them

BCG CASH COWS (Low Growth, High Market Share)

Have high market share in a mature market

If competitive advantage has been achieved, cash cows have high profit margins and generate a lot of cash flow.

Because of the low growth, promotion and placement investments are low.

Investments into supporting infrastructure can improve efficiency and increase cash flow more.

Cash cows are the products that businesses strive for.

BCG DOGS (low growth, low market share)

Dogs are in low growth markets and have low market share. They should be avoided, minimized and the expensive turn-around plans usually do not help for them.

Limitations of BCG model

The limitations include:

how to define market / how we get data about market share

A high market share does not necessarily lead to profitability at all times

This model make use of only two dimensions i-e market share & product/ service growth rate

Low share businesses can be profitable too (Dogs can be more profitable than cash Cows)

The overall growth rates of market does not reflected by this model

The effects of synergy between business units are neglected by this model.

For attractiveness of a market growth is not the only indicator

We can recommend reading about the SWOT model, SPACE matrix, and Michael Porter's Five Forces model.

The BCG matrix model has some similarities with the Internal-External IE matrix method.

The BCG matrix can help to find a strategy. The Quantitative Strategic Planning Matrix (QSPM)model can be used to compare strategic alternatives.

Question:

(a) Consider the extension of product life cycle and Ansoff growth matrix, identify and discuss how in your own opinion, your chosen organisation have applied these models to help ensure the continued success of the company products and marketing strategies adopted.

(b) Evaluate the usefulness of marketing and strategic models in relation to the continue success or failure of your chosen organisation

Suggested Reading:

Textbooks:

De Wit, B. and Meyer, R. (2004) - Strategy Process, Content, and Context International Perspective, 3rd Edition, Thomson Learning

Johnson, G., Scholes, K. and Whittington, R. (2005) Exploring Corporate Strategy: Text and Cases, 7th Edition, Financial Times Prentice Hall.

Lynch, R. (2006) Corporate Strategy, Fourth Edition, Financial Times Prentice Hall.

Mintzberg, H., Ahlstrand, B. and Lampel, J. (1998) Strategy Safari, Financial Times Prentice Hall

Kotler, Marketing Management

You may use any other textbooks.

Websites & PDF documents:

http://walmartstores.com/sites/AnnualReport/2008/docs/wal_mart_annual_report_2008.pdf - Annual Report

http://www.walmart.com/ - Wal-Mart

www.carrefour.com/ - Carrefour Food Retail

www.economist.com The Economist

www.ers.usda.gov/Briefing/GlobalFoodMarkets/Industry - Global Food Markets: Global Food Industry Structure

www.ft.com The Financial Times

www.kroger.com/ - Kroger Food Retail

www.metrofoods.net/ - Metro Food Retail

www.plunkettresearch.com/Industries/ - Plunket Research

www.tesco.com/ - Tesco Food Retail