Amity Business School: Competitive Strategy BCG Matrix

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1
Amity Business School

Competitive Strategy
BCG Matrix
Mona Chaudhary
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18- 2
Definition
Competitive Analysis
The process of identifying key
competitors; assessing their
objectives, strategies, strengths and
weaknesses, and reaction patterns;
and selecting which competitors to
attack or avoid.

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18- 3

Hypothetical
Market Structure
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18- 4
Expanding the total
demand
Finding new users
Discovering and promoting
new product uses
Encouraging greater product
usage
Protecting market share
Many considerations
Continuous innovation
Expanding market share
Profitability rises with market
share
Market Leader
Market
Challenger
Market
Follower
Market Nicher
Competitive
Positions
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18- 5
Option 1: challenge the
market leader
High-risk but high-gain
Sustainable competitive
advantage over the leader is
key to success
Option 2: challenge firms
of the same size, smaller
size or challenge regional
or local firms
Full frontal vs. indirect
attacks
Market Leader
Market
Challenger
Market
Follower
Market Nicher
Competitive
Positions
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18- 6
Pepsi is an
example of
market
challenger
that has
chosen to use
a full frontal
attack
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18- 7
Follow the market
leader
Focus is on improving
profit instead of market
share
Many advantages:
Learn from the market
leaders experience
Copy or improve on
the leaders offerings
Strong profitability
Market Leader
Market
Challenger
Market
Follower
Market Nicher
Competitive
Positions
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18- 8
Serving market niches
means targeting
subsegments
Good strategy for
small firms with limited
resources
Offers high margins
Specialization is key
By market, customer,
product, or marketing
mix lines
Market Leader
Market
Challenger
Market
Follower
Market Nicher
Competitive
Positions
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18- 9
Companies can become so competitor
centered that they lose their customer
focus.
Types of companies:
Competitor-centered companies
Customer-centered companies
Market-centered companies
Balancing Customer and
Competitor Orientations
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18- 10
Competitive Rivalry
number of competitors
rate of industry growth
intermittent industry overcapacity
exit barriers
diversity of competitors
informational complexity
brand equity
level of advertising expense

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Boston Consulting Group Matrix
11
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INTRODUCTION

BOSTON CONSULTI NG GROUP (BCG) MATRI X
is developed by BRUCE HENDERSON of the
BOSTON CONSULTI NG GROUP I N THE EARLY
1970s.

According to this technique, businesses or
products are classified as low or high performers
depending upon their market growth rate and
relative market share.
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Relative Market Share
&
Market Growth

To understand the Boston Matrix you need
to understand how market share and
market growth interrelate.

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MARKET SHARE

Market share is the percentage of the total market that is
being serviced by your company, measured either in
revenue terms or unit volume terms.

The higher your market share, the higher proportion of
the market you control.

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MARKET GROWTH
RATE

Market growth is used as a measure of a markets
attractiveness.

Markets experiencing high growth are ones where the
total market share available is expanding, and theres
plenty of opportunity for everyone to make money.

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THE BCG GROWTH-SHARE

It is a portfolio planning model which is based on the
observation that a companys business units can be
classified in to four categories:
Stars
Question marks
Cash cows
Dogs

It is based on the combination of market growth and
market share relative to the next best competitor.
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Name of Institution STARS
High growth, High market share
Stars are leaders in business.
They also require heavy investment, to
maintain its large market share.
It leads to large amount of cash
consumption and cash generation.
Attempts should be made to hold the
market share otherwise the star will
become a CASH COW.

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Implications:
Stars:
Huge potential
May have been expensive to develop
Worth spending money to promote
Consider the extent of their product life cycle
in decision making

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Low growth , High market share

They are foundation of the company and often
the stars of yesterday.
They generate more cash than required.
They extract the profits by investing as little
cash as possible
They are located in an industry that is mature,
not growing or declining.

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Implications:
Cash Cows:
Cheap to promote
Generate large amounts of cash
use for further R&D?
Costs of developing and promoting
have largely gone
Need to monitor their performance
the long term?
At the maturity stage of the PLC?

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DOGS
Low growth, Low market share

Dogs are the cash traps.
Dogs do not have potential to bring in
much cash.
Number of dogs in the company should
be minimized.
Business is situated at a declining
stage.
Implications:
Dogs:
Are they worth persevering with?
How much are they costing?
Could they be revived in some way?
How much would it cost to continue
to support such products?
How much would it cost to remove
from the market?

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QUESTION MARKS
High growth , Low market share

Most businesses start of as question marks.
They will absorb great amounts of cash if the
market share remains unchanged, (low).
Why question marks?
Question marks have potential to become
star and eventually cash cow but can also
become a dog.
Investments should be high for question
marks.
Implications:
Problem Children:
What are the chances of these products
securing a hold
in the market?
How much will it cost to promote them to a
stronger position?
Is it worth it?
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BENEFITS OF BCG MATRIX

BCG MATRIX is simple and easy to understand

It helps you to quickly and simply screen the
opportunities open to you, and helps you think
about how you can make the most of them.

It is used to identify how corporate cash
resources can best be used to maximize a
companys future growth and profitability.
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LIMITATIONS

BCG MATRIX uses only two dimensions, Relative
market share and market growth rate.

Problems of getting data on market share and market
growth.

High market share does not mean profits all the time.

Business with low market share can be profitable too.

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Though BCG MATRIX has its limitations it is one of the
most FAMOUS AND SIMPLE portfolio planning matrix
used by large companies having multi-products
28

Amity Business School: Competitive Strategy BCG Matrix

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