TOOLKIT: BCG matrix
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The main purpose of BCG matrix is to determine strategies for organisation’s products.
Just a reminder to keep a record of all the tools in the table below. As long as you can fill in all the cells of the table, you will be able to write a successful IA.
How to
BCG matrix is a product portfolio analysis tool that examines the products in terms of market share and market growth. BCG market is closely related to product life cycle, so if you forgot what that is, then please review class 4.5. The purpose of BCG matrix is to determine strategies for organisation’s products. Before determining strategies, BCG matrix breaks down all products in the product portfolio into 4 categories:
As we learn what these 4 categories of products mean, I am (as always) going to keep you busy and ask you to fill in the table below.
The fourth column of the table above is product life cycle (PLC) stage. For a more detailed explanation of what it is, revisit class 4.5. For a quick reminder, see the picture below.
Star is a product with high market share in a market with high growth. This kind of products generates high income but also consumes large amounts of cash. Stars are usually in the growth stage of the product life cycle. The strategy that should be applied to stars is called harvest strategy, which refers to trying to turn stars into cash cows. It might involve sustaining the growth of market share by increased promotion or by decreasing the price. What’s important about stars is that they operate in markets with high growth, which means that in order to keep market share on the same level, sales have to be increased (hence there is a need for increased promotion and/or deceased price).
Stars might be mistakenly thought to be “the best” product in BCG matrix because both parameters are high: high market growth and high market share. This is not right because keeping high market share in highly growing markets is difficult. That is why, “the best” product is a cash cow.
Cash cow is a product with high market share in a market with low growth. This kind of products generates high income that can be used to sustain stars or other products. Cash cows are usually in the maturity/saturation...