Strategic matrix bkg. Boston Advisory Group Matrix

10.10.2019

Ministry of Agrarian and Food Policy of Ukraine

Kharkiv National Agrarian University

Named after V.V. Dokuchaev

INDZ on the topic : "Analysis of the position of the goods on the market for additional matrices BKG"

Vikonav: 4th year student, 3rd group

Faculty: Management and Economics

Specialty: "Management of organizations"

Shulzhenko Yu.A.

Revised by: Yulia Volodymyrivna

Kharkiv 2012

BCG matrix 1

1.1Scope 2

1.2 Description 3

BCG matrix

Brownleft arrow- typical product life cycle, black arrows - typical investment flows

BKG matrix(English) BCG matrix) is a tool for strategic analysis and planning in marketing. Created by the founder of the Boston consulting group Bruce D. Hendersen to analyze the relevance of the company's products, based on their position in the market relative to the growth of the market for these products and the market share occupied by the company for analysis.

This tool is theoretically justified. It is based on two concepts: product life cycle* and economies of scale* or learning curve.

The axes of the matrix show market growth (vertical axis) and market share (horizontal axis). The combination of estimates of these two indicators makes it possible to classify the product, highlighting four possible roles of the product for the company that produces or sells it.

1.1 Scope

The BCG matrix can be used in the process of strategic analysis and planning of the product program (product range), allows you to properly allocate resources between the available products. Re-building the BCG matrix after a certain period of time can be useful in the controlling process.

1.2 Description

The Boston Matrix is based on a product life cycle model, according to which a product goes through four stages in its development: access to the market(product-"problem"), growth(product-"star"), maturity(product - "cash cow") and recession(product-"dog"). The BCG matrix is a graphical representation of the position of a particular type of business in the strategic space "growth rate / market share".

* Product life cycle- the period of time during which the product circulates on the market, starting from the moment it enters the market market and ending with its withdrawal from the market. One of the fundamental concepts of the concept of modern marketing.

Graphs characterizing the change in indicators in various phases of the life cycle. 1-Phase of entering the market;

3-maturity;

4- Decline: A - sales;

B - profit.

Various options for the product life cycle curve: 2 - repeated cycle;

3 - "comb" curve

According to the marketing concept, any product goes through a life cycle, that is, there is a certain period of time when it is present on the market. In a typical product life cycle, there are four phases, four stages:

1. Bringing the product to market. First appearance of the product on the market. Characteristic is a small increase in sales volumes and, accordingly, profit is minimal or non-existent.

2.Growth. A period of rapid growth in sales if the product is accepted by the market and demand grows on it. Profits also increase as sales increase.

3.Maturity. Sales volumes are significant, but further sales growth is not observed. Profit at this stage has stabilized, since additional costs are not required to bring the product to the market.

4.decline, withdrawal from the market. This phase of the product life cycle is characterized by a significant decrease in sales volumes up to a complete drop in demand for this product. Profits plummet to zero.

Scale effect* is associated with a change in the cost of a unit of output, depending on the scale of its production by the firm. considered in the long term. Reducing the cost per unit of output with the consolidation of production is called economies of scale. The type of the long-run cost curve is associated with the effect of scale in production.

Classifications of types of strategic business units:

"Stars"

High sales growth and high market share. Market share must be maintained and increased. "Stars" bring very big income. But, despite the attractiveness of this product, its net cash flow is quite low, as it requires significant investment to ensure a high growth rate.

"Cash Cows" ("Money Bags")

High market share but low sales volume growth. "Cash cows" must be protected and controlled as much as possible. Their attractiveness is explained by the fact that they do not require additional investments and at the same time provide a good cash income. Proceeds from sales can be directed to the development of "Difficult Children" and to support the "Stars".

"Dogs" ("Lame Ducks", "Dead Weight")

The growth rate is low, the market share is low, the product usually has a low level of profitability and requires a lot of attention from the manager. Get rid of dogs.

"Difficult Children" ("Wild Cats", "Dark Horses", "Question Marks")

Low market share, but high growth rates. Difficult children need to be studied. In the future, they can become both stars and dogs. If there is a possibility of transferring to the stars, then you need to invest, otherwise, get rid of it.

disadvantages

Strong simplification of the situation;

The model takes into account only two factors, but high relative market share is not the only success factor, and high growth rates are not the only indicator of market attractiveness;

Lack of consideration of the financial aspect, the removal of dogs can lead to an increase in the cost of cows and stars, as well as negatively affect the loyalty of customers using this product;

The assumption that market share corresponds to profit, this rule may be violated when a new product is introduced to the market with large investment costs;

The assumption that the market decline is caused by the end of the product's life cycle. There are other situations in the market, for example, the end of the rush demand or the economic crisis.

Advantages

theoretical study of the relationship between financial receipts and the analyzed parameters;

objectivity of the analyzed parameters (relative market share and market growth rate);

clarity of the results obtained and ease of construction;

it allows you to combine portfolio analysis with a product life cycle model;

simple and easy to understand;

it is easy to develop a strategy for business units and an investment policy.

Construction rules

The horizontal axis corresponds to the relative market share, the coordinate space is from 0 to 1 in the middle with a step of 0.1 and then from 1 to 10 with a step of 1. Market share estimation is the result of an analysis of sales of all industry participants. Relative market share is calculated as the ratio of own sales to sales of the strongest competitor or the top three competitors, depending on the degree of concentration in a particular market. 1 means that own sales are equal to sales of the strongest competitor.

The vertical axis corresponds to the growth rate of the market. The coordinate space is determined by the growth rate of all company products from maximum to minimum, the minimum value can be negative if the growth rate is negative.

For each product, the intersection of the vertical and horizontal axes is set and a circle is drawn, the area of which corresponds to the share of the product in the company's sales.

BCG matrix helps to perform two functions: making decisions about the intended positions in the market and the distribution of strategic funds between different areas of management in the future.

Among the advantages of the BCG matrix as a tool strategic management First of all, it is worth noting its simplicity. The matrix is very useful in choosing between different SBAs, determining strategic positions, and in allocating resources in the short term. However, due to its simplicity, the BCG matrix has two significant drawbacks:

all SZH, the position in which the company is analyzed using the BCG matrix, should be in the same phase of life cycle development;

within SZH, competition should proceed in such a way that the indicators used are sufficient to determine the strength of the company's competitive position.

If the first flaw is fatal, i.e. SZH located on different stages life cycle cannot be analyzed using this matrix, then the second drawback can be completely eliminated. In the process of improving the BCG matrix, the authors proposed completely different indicators. The main ones are presented in table 2.

Table 2. Indicators of assessing the strategic position using the BCG matrix.

The indicator of the company's future competitiveness in the market is determined by the ratio of the expected return on capital and the optimal (or basic) return on capital. In fact, this is the projected return on equity of the company or an analysis of the trend in this indicator in recent years. In the general case, the attractiveness of SZH can be calculated based on the ratio:

SZH attractiveness = aG + bP + cO - dT,

where a, b, c and d are the coefficients of the relative contribution of each factor (they add up to 1.0), G are the prospects for market growth, P are the prospects for profitability in the market, O are positive environmental impacts, T are negative environmental impacts side of the environment.

As an example, consider a representation using the BCG matrix strategic positions Randy's hypothetical organization in a number of business areas in the tea market. A study of the organization's business showed that it actually competes in 10 areas of the tea market (Table 1).

Table 1. Characteristics of Randy's business areas in the tea market

Randy's organization business area	Sales volume/area size, drive, to mean	Annual Market Growth Rate (1990-94)	The organization's largest competitors in a given business area	Sales volume of the largest competitors	Relative market share of Randy's organization resp. Segment
Varietal tea. USA
Varietal tea. Canada
Varietal tea. Europe
Varietal tea. Third countries
Tea brand "Big Boy"
Tea brand "SmallFry"			George's Contracts
Herb tea. USA
Herb tea. Export
Fruit tea. USA
Fruit tea. Export

The BCG model for the considered business areas of the Randy organization is as follows (Fig. 3).

Rice. 3. BCG matrix of Randy's businesses in the tea market

The most cursory look at the resulting model suggests that Randy's organization attaches undeserved importance to such a business area as "U.S. private label tea." This area is classified as "dogs" and although the growth rate of this market segment is quite high (12%), Randy has a very strong competitor in the form of Cheapco, whose market share in this market is 1.4 times larger. Therefore, the rate of profit in this area will not be high. If with regard to the future of such a business area as "US private label tea", one can still think about whether to continue to invest here to maintain its market share or not, then with regard to "varietal tea from Europe", "varietal tea from Canada" and "varietal tea from the USA" everything turns out to be very clear. We need to get rid of this kind of business and as soon as possible. The investments that Randy's organization makes to maintain this business do not lead to an increase in market share or an increase in profits. In addition, the market for these types of tea itself shows a clear trend towards fading. It is clear that Randy's organization is clearly oblivious to the prospects associated with the development of the US fruit tea and US herbal tea market. These areas of business are clear "stars". Investments in the development of a share in this market in the near future may result in significant income.

Building the BCG matrix (BCG) in practice

Need to develop strategy firm regarding its product portfolio, using the technique BCG. To do this, it is necessary to calculate the current indicators of the methodology, build BCG matrix, identify strategically unattractive products and exclude them from the output, and then, after recalculating the indicators, build new BCG matrix.

Product type	Sales volume, thousand rubles	Market share (%), 2003		Share of costs
Product type		firms	show jumping	Share of costs
1. Toy "Bagheera"
2. Toy "Barsik"
3. Toy "Cat Behemoth"
4. Toy "Gavryusha"
5. Toy "Dolmatian"
6. Toy "Dragon"
7. Toy "Tiger Zhorik"
8. Toy "Elephant"
9. Toy "Umka No.

Let's produce calculation indicators of the BCG matrix. Calculate the indicator market growth (RR). This indicator characterizes the movement of goods on the market, which is expressed through the change in the volume of sales (sales) of this product (the result of this business process) for the last considered period of time (in a simplified version, the ratio of sales for the last period to the penultimate one). Hence,

РР1=564.96/256.8=2.2;

PP2=124.4/124.41=0.99992;

РР3=132.95/133.98=0.992312;

РР4=115.0/116.44=0.987633;

РР5=1001.52/256.8=3.9;

PP6=75.18/175.45=0.428498;

PP7=122.99/67.48=1.822614;

PP8=350.92/87.73=4;

PP9=47.69/73.37=0.649993.

Calculate the indicator Relative market share (RMO). This parameter is determined by the ratio of the company's market share to the share of the leading competing company, and the company's market share is found as the ratio of sales volume to the market capacity of this product. ODR 1 \u003d 8 / 32 \u003d 0.25; ODR 2 =50/50=1; ODR 3 =62/31=2; ODR 4 = 57/43 = 1.32558; ODR 5 =2/14=0.14286; ODR 6 =7/6=1.16667; ODR 7 =12/88=0.13636; ODR 8 =6/7=0.85714; ODR 9 \u003d 16 / 32 \u003d 0.5.

The diameter of the circle, expressed in relative units (the sales volume of one of the goods is taken as a unit), is selected in proportion to the share of the production volume in the sales volume (it is necessary that the matrix can be "worked", so you need to be careful when choosing a standard).

Let us correlate the resulting diagram with the BCG matrix. The boundaries of the matrix quadrants are shown here by arrows. Each product (product numbers are marked with numbers) manufactured by the company corresponds to its own quadrant of the BCG matrix. So,

Product type	diameter	BCG quadrant
1. Toy "Bagheera"		wild cat
2. Toy "Barsik"
3. Toy "Cat Behemoth"		Cash cow (on the border with a star)
4. Toy "Gavryusha"		Dog (on the border with a wild cat)
5. Toy "Dolmatian"		wild cat
6. Toy "Dragon"
7. Toy "Tiger Zhorik"		wild cat
8. Toy "Elephant"		wild cat
9. Toy "Umka No. 2"

Of the goods produced by the company (as follows from the description of the BCG matrix areas), only the Behemoth Cat toy, which belongs to the Cash Cows area (on the border with the Stars area), brings a steady profit. When compiling a new product portfolio of a company, one should focus on the most promising products. However, in this case, it turns out that most of the company's products belong to the field "Wild cats" or "Dogs". Products classified as "Wild Cats" are undoubtedly promising, as they are in rapidly growing markets, but their promotion requires a lot of effort from the company. financial costs. In this case, only one product "Cat Behemoth" provides a stable inflow of funds, the profit from the sale of which cannot cover such a number of deployed projects classified as "Wild Cats".

In addition, the company's portfolio includes four commodities classified as "Dogs". Typically, such products do not bring significant profits and their release is justified only within a dedicated market in the absence of serious risks, in the global market, or in the case when the release of this product gives the company additional competitive advantages. In this case, we are working in a simplified situation, so we will assume that the goods classified as “Dogs” are not profitable for the company. In a real situation, it would be necessary to study the detailed information for each product in more detail.

So, we believe that the “Dogs” of the company are not profitable, therefore, the company can exclude them from its product portfolio. The four "Wild Cats" require a very large inflow of funds, therefore, it is not profitable for the company to release all these products at the same time. It would be wise to single out one or two products (the most promising for the company) and invest in them all the funds that will be freed from the discontinuation of "Dogs" and additional "Wild Cats".

Since we are working in a simplified situation, we will choose one product that is the most promising for the company. In this case, products 5 (Dolmatian toy) and 8 (Elephant toy) are the most promising. Product 5 has the largest share in the total sales volume of the company, product 8, having the same level of the PP indicator as the 5th product, while having the highest level of the ODR indicator among the Wild Cats. Let's choose product 8, which has "advanced" the most towards the "Stars" region of the BCG matrix.

1. According to the sales indicator (V sales) of the 8th product, we calculate the total V market for this product = (old sales indicator (V sales)) / (market share of the company for this product) 100 \u003d 350.92 / 6 100 \u003d 5848.67.

2. For products 1, 2, 4, 5, 6, 7, 9, which are withdrawn from the market, we calculate the total amount intended for redistribution = S (V sales) (cost coverage) = 282.48 + 52.248 + 37, 95+701.064+24.058+73.794+25.753=1197.346.

3. Increase in sales (realizations)=1197.346/(coverage of product 8 costs)=1596.461.

4. New market V=(old market V)+1596.461=5848.67+1596.461=7445.13.

5. New sales V = (old sales (V sales) of product 8) + (sales growth) = 350.92 + 1596.461 = 1947.381.

6. New market share of the firm = (new sales V)/(new market V)=1947.381/7445.13=0.262.

7. V sales of the main competitor \u003d (old V market) (market share of the main competitor) \u003d 5848.67 0.07 \u003d 409.41.

8. New market share of the main competitor \u003d (V sales of the main competitor) / (new V market) \u003d 409.41 / 7445.13 \u003d 0.055.

9. New ODR \u003d (new market share of the company) / (new market share of the main competitor) \u003d 0.262 / 0.055 \u003d 4.76.

10. New PP \u003d (new V sales) / (sales of the product for the last year 2002) \u003d 1947.381 / 87.73 \u003d 22.197.

So, new product portfolio will

On practice usually it is necessary to revise various options for action, the enumeration of which allows you to develop an optimal strategy for the development of the company's product profile.

Obtained as a result of analysis by the BCG method product strategy turns out to be very attractive, as it allows turning one of the products from the “Wild Cat” into the undeniable “Star” due to the removal of not very promising products from production. Such strategic move will allow the company to gain a strong position in the market of children's products and possibly obtain the necessary funds for the promotion of new (at this stage rejected) products, but this is already a matter of future development of strategic lines. However, it should be noted that in practice it is required to treat the obtained results with caution and to check them multiple times, considering various options future strategy (to avoid missed opportunities).

Stars

These tend to be new business areas that account for a relatively large share of a rapidly growing market, operations in which bring high profits. These business areas can be called leaders in their industries. They bring organizations a very high income. However the main problem connected with determining the right balance between income and investment in this area in order to guarantee the return of the latter in the future.

cash cows

These are business areas that have gained relatively large market share in the past. However, over time, the growth of the relevant industry slowed down noticeably. As usual, "cash cows" are "stars" in the past, which currently provide the organization with enough profit to maintain its competitive position in the market. The cash flow in these positions is well balanced. Such a business area requires the necessary investment minimum, can bring large incomes.

Difficult children

These business areas compete in growing industries but hold a relatively small market share. This combination of circumstances leads to the need to increase investment in order to protect its market share and ensure survival in it. These business areas struggle to generate revenue for the organization due to their small market share. Most often, they remain net consumers of cash until their market share changes. These business areas have the greatest degree of uncertainty: either they will become profitable for the organization in the future, or not.

Dogs

These are business areas with relatively small market share in slow growing industries. Cash flow in these areas of business is usually very small, often even negative. Any move by an organization towards gaining a large market share is uniquely immediately counterattacked by the industry's dominant competitors. Only the skill of a manager can help an organization maintain its position in the market.

o leaders in high-growth markets;
o significant profit;
o Significant investment is needed to finance growth.

Dairy Cows:

o market leaders with low sales growth and high market share;
o a profitable product with a high coefficient.

Difficult kids:

o the starting point for most products put on the market;
o high sales growth rate;
o huge funding needs (research and development, cost to market, etc.);
o low profit margin.

o Enough big number products is unprofitable;
o low cost;
o low profit margin or losses;
o extremely limited growth opportunities.

This approach allows us to formulate possible marketing strategies for the main categories of BCG products, which are as follows.

o adopt a defense strategy;
o make repeated investments of income in the form of product upgrades, price reductions, production efficiency improvements, etc.;
o Win a significant share of new customers.

Dairy Cows:

o adopt a "hold" strategy;
o maintain a leading position in the market;
o to invest in the modernization of the manufacturing process and in obtaining a technological advantage;
o to invest in the modernization of the product;
o maintain a leading position in terms of price;
o use part of the profits to support products of the category "problem children" and "stars";
o for weak products, use the "yield" strategy.

Difficult kids:

o Adopt a "scaling up" strategy;
o make significant investments to obtain a high share of new sales, buy out competing products in order to gain additional market share;
o focus efforts on a specific market niche in which a dominant position can be achieved.

Dogs (unprofitable goods):

o focus on a specific market segment in which you can maintain a leading position and protect yourself from attacks by competitors;
o apply the "harvest" strategy;
o increase short-term profitability by minimizing all support costs;
o use a “wind down” strategy: sell the product or discontinue its production due to the fact that resources can be used with greater benefit elsewhere.

The use of the BCG matrix is also associated with the presence of certain problems, namely:

o definition of market share and sales growth rate is rather arbitrary;
o certain provisions are not indisputable (for example, the theory of the product life cycle suggests using a market niche strategy for a low-profit product until the product becomes profitable);
o this system does not take into account the principle of synergy (cases where the overall result exceeds the sum of its individual elements).

Offered by General Electric and consulting firm The McKincey matrix "industry attractiveness - competitive position" is free from some of the shortcomings inherent in the BCG matrix. In particular, unlike the BCG matrix, instead of two gradations along each of the axes, three are introduced, resulting in a 3x3 matrix considered in the two-dimensional coordinate system "attractiveness of the industry - position in competition."

The long-term attractiveness of the industry is considered as an integral characteristic, determined on the basis of an assessment of a certain set of factors: market capacity (size) and its expected growth, market accessibility, industry profitability, technological state, the severity of competition, the assessment of opportunities and threats, the duration of the life cycle, as well as seasonal and cyclical fluctuations, the degree of dependence on the social and political situation, government regulation, etc.

Competitive position is also assessed based on the values of a certain set of relevant factors, such as: the relative market share in relation to the leader, the relative level of costs compared to a direct competitor, the degree of technology development, the level of management and the level of profitability relative to competitors, the ability to compete on prices and quality, image, product awareness, etc.

Estimates of the attractiveness of the industry and competitive position are made for each type of product, after which the McKinsey matrix "attractiveness of the industry - position in competition" is built (Fig. 8).

Fig 8.

Here you can see some parallel with the BCG matrix - the strategies given in the corner quadrants of this matrix are similar to the corresponding strategies prescribed by the BCG matrix ("difficult children" ("question marks"), "cash cows", "stars", "dogs" ).

McKinsey improved the Boston Matrix during a project commissioned by GE and created the GE-McKinsey Matrix (OE Matrix). The purpose of the work was the same - to assess the attractiveness of the market and the strategic position of the enterprise.

The strategy of marketing decisions focused on the growth of companies includes the Ansoff matrix ("product - market"), which allows you to link the developed strategy with the capabilities of the enterprise, with the characteristics of production and sales, with the process of segmenting the consumer market. There are several varieties of the product-market matrix. The simplest four-cell matrix clearly demonstrates four possible options enterprise strategy (Table 7). On the axes of the matrix, two classes of products are plotted - traditional and new, and two types of markets - mastered and new. Their combinations form four strategic fields, each of which represents an important strategy option.

Table 7. Four-cell matrix "product - market"

Field 1 - the enterprise operates with existing goods in existing markets. This is the least acceptable variant of the strategy, because the enterprise runs the risk of colliding with competitors, experiencing a drop in demand for goods. In the context of the implementation of this strategy, one cannot count on a long-term inflow of profit

Field 2 - market expansion while maintaining existing products, or an extensive strategy. This strategy is associated with significant advertising costs for both the product and the enterprise itself. It is preferable only at the stage of implementation of the life cycle and at the stage of formation of demand for this product, when the costs of promoting the product to the market can be guaranteed.

Field 3 - strategy for developing a new product in already known markets. This strategy is sometimes called innovative.

Field 4 - Development of new products in new markets - diversification strategy This is the most effective strategy for the long term, however, requiring significant costs for the development, advertising and promotion of goods.

The correct formation of market strategies largely depends on the state of the market situation, which is understood as the current state of economic parameters that determine the processes taking place on the market. These include: the level and ratio of wholesale and retail prices for goods, the volume and structure of demand, the size of the product offer, the value inventory. Market conditions are very mobile in time and can change under the influence of a variety of factors. A close study of these factors will make it possible to buy and sell goods at the most favorable prices, rationally maneuver resources, and respond flexibly to the release of more or less goods.

The BCG matrix is one of the most popular marketing analysis tools. With its help, you can choose the most profitable strategy for promoting the product on the market. Let's find out what the BCG matrix is and how to build it using Excel.

The matrix of the Boston Consulting Group (BCG) is the basis for the analysis of the promotion of product groups, which is based on the growth rate of the market and on their share in a particular market segment.

According to the matrix strategy, all products are divided into four types:

"Dogs";
"Stars";
"Difficult Children";
"Cash Cows".

"Dogs" are products that have a small market share in a segment with a low growth rate. As a rule, their development is considered inexpedient. They are unpromising, their production should be curtailed.

"Difficult Children"- products that occupy a small market share, but in a rapidly growing segment. This group also has another name - "dark horses". This is due to the fact that they have the prospect of potential development, but at the same time they require constant financial investments for their development.

"Cash Cows" These are products that occupy a significant share of a weakly growing market. They bring constant stable income, which the company can direct to the development "Difficult Children" and "Stars". themselves "Cash Cows" investments are no longer required.

"Stars" is the most successful group with a significant share in a rapidly growing market. These products are already generating significant income, but investing in them will increase this income even more.

The task of the BCG matrix is to determine which of these four groups a particular type of product can be attributed to in order to work out a strategy for its further development.

Creating a table for the BCG matrix

Now on specific example Let's build the BCG matrix.

Chart construction

After the table is filled with initial and calculated data, you can proceed to the direct construction of the matrix. For these purposes, the bubble chart is most suitable.

After these steps, the diagram will be built.

Axes setup

Now we need to properly center the chart. To do this, you will need to adjust the axes.

Matrix Analysis

Now we can analyze the resulting matrix. Goods, according to their position on the matrix coordinates, are divided into categories as follows:

"Dogs"- lower left quarter;
"Difficult Children"- upper left quarter;
"Cash Cows"- lower right quarter;
"Stars"- upper right quarter.

Thus, "Product 2" and "Product 5" refer to "Dogs". This means that their production must be curtailed.

"Product 1" refers to "Difficult Children" This product needs to be developed by investing in it, but so far it does not give the proper return.

"Product 3" and "Product 4"- This "Cash Cows". This group of goods no longer requires significant investments, and the proceeds from their sale can be directed to the development of other groups.

"Product 6" belongs to the group "Stars". It is already profitable, but additional investments Money able to increase income.

As you can see, using Excel tools to build a BCG matrix is not so difficult as it might seem at first glance. But the basis for the construction should be reliable initial data.

It is probably difficult to give an example of a simpler, more visual and well-known analysis tool in marketing than the BCG matrix. This diagram is divided into 4 sectors and has memorable original names ("Dead Dogs", "Stars", "Cash Cows" and "Difficult Children"). Perhaps today it is known to any manager, marketer, student or teacher.

The matrix, which was developed by the Boston Consulting Group, was an instant hit. This happened due to the visibility and simplicity of the analysis of goods, companies or divisions, based on 2 objective factors: the rate of market growth and market share. And at the present moment, any economist should know how to build a BCG matrix.

essence

The BCG Matrix was created by Bruce Henderson, founder of a consulting group in Boston. This is a great tool for strategic planning in marketing. It is needed to analyze the timeliness of the company's products, based on their current position in the market in accordance with the growth in sales of these products, as well as the market share taken by this company for analysis.

This tool for planning and strategic analysis is theoretically fully justified.

The BCG matrix (an example of construction and analysis is given in the article below) displays the market share (horizontal) and market growth (vertical) along the axes. The combination of estimates of these indicators makes it possible to classify the product, while highlighting 4 roles of the product for the company selling or producing it.

If we consider an example of constructing and analyzing the BCG matrix, it becomes clear that its purpose is to identify the relevance of the company's products depending on the increase in the market for these products, as well as the share it occupies. It's called Growth-Share Market.

On the BCG matrix, the relative market share of the company's products is displayed on one of the coordinate axes, while the second is used to measure the growth rate of the market for this product.

BCG Matrix are 2x2 matrices. It shows business areas as circles whose centers are at the intersection of coordinates, which are formed by the values of the approximate share of the company in the relevant market and growth rates.

Matrix quadrants

Using the example of constructing and analyzing the BCG matrix, it will also be interesting to consider that each of the quadrants in it is given certain names: "Stars", "Difficult children", "Dogs", "Cash cows". Let's consider each of them.

Difficult children

These business areas in growing industries compete, while occupying a small market share. This combination of circumstances leads to the need to increase investments in order to protect one's own market share, in addition, to guarantee its survival. The rapid growth of the market needs a lot of cash in order to match this growth. But such business areas generate income for the organization with great difficulty due to their small market share. These areas are mainly consumers of financial cash, not its generators, and they remain so until their market share changes.

Stars

These typically include new business lines that occupy a large share of a rapidly growing market in which operations bring high profits. Such business areas can be safely called industry leaders. Organizations they bring a very high income. But the main problem is related to finding the right balance between investment in this area and income in order to guarantee the return of the latter in the future. They are leaders in a rapidly growing market. "Stars" give a good profit, although they need investments to maintain such positions. Interestingly, if the market stabilizes, they can easily turn out to be Cash Cows.

cash cows

"Cash cows" in the BCG matrix are business areas that have received a fairly large market share in the past. But the growth of the relevant industry slowed down noticeably over time. Basically, "Cash Cows" in the past were "Stars" that provide organizations with enough profit in the present to maintain their own competitive position in the market. In these positions, the cash flow is well balanced, since very little is required to invest in such a business area.

Dogs

These are areas in slowly growing industries with a fairly small market share. At this point, the financial cash flow is mostly very small, even more often negative. In this case, every step of the organization, aimed at obtaining a larger share of the market, is immediately counterattacked by competitors that dominate the industry.

Matrix construction

The intersection of the axes in which the horizontal is equal to the market share, this is the BCG matrix. The construction and analysis example shown below demonstrates that it calculates the ratio of its sales to the sales of the strongest competitor or 3 competitors, which depends on the level of market concentration.

The vertical axis tells about the growth rate. The BCG matrix therefore forms 4 quadrants. Moreover, each of them has different products.

The matrix is based on a product life cycle model, which is based on 2 assumptions:

Participation in a growing market indicates an increased need for material resources for one's own development, namely, expansion and renewal of production, advertising, etc. If the growth rate is low, then the product does not need significant financing.
A business that has a significant market share gains experience as a result of competitive advantage regarding production costs.

Using the BCG Matrix

It should be taken into account when analyzing the position of certain goods or product groups on the market that, under certain conditions, “difficult children” may turn out to be “stars”, while “stars” will turn into “cash cows” with the advent of maturity, and then into “dogs”. ". Thus, based on this data, you can choose the main options for the company's strategies:

increase and growth of the market share - the transformation into a "star" of the "question mark";
Maintaining market share is a strategy that suits cash cows whose revenues are important to financial innovation and growing product types.
“harvesting”, in other words, making quick profits in possible sizes, including by reducing market share, is a strategy for “cash cows” who have no future, as well as unfortunate “dogs” and “question marks”;
liquidation of a business is a strategy for question marks and dogs that do not have the opportunity to invest in order to improve their own positions.

The matrix can be applied:

Advantages

The advantages of the BCG matrix in terms of its use as a tool for analyzing the internal environment of a company include:

allows you to visually present and analyze the results of the application of the adopted marketing strategies company, market position, in addition, the contribution of each specific type of activity (product) to the results of the company's performance;
focuses on the consumer, as well as the key results of the company's work - the enterprise's grocery basket (product), production volumes, profitability and sales, starting from which it is possible to analyze the steps taken within the organization for this;
gives a generalized picture of the competitiveness and demand for the company's products;
shows the priorities in the selection of options for financial, production and marketing solutions for several types of activities, the creation of a business portfolio of the company, competition strategies;
is an easy to use and understand, simple approach to the analysis of the company's product basket;
helps to justify options for various marketing strategies.

disadvantages

The main disadvantages of the matrix include:

focused more on companies - striving for leadership or leaders;
is based on a statement and analysis of what has been achieved and without new research cannot give a similar picture for the future, while taking into account the impact of changes in the internal and external environment of the company;
does not give an accurate answer about the potential, efficiency of the use of enterprise resources and its capabilities (this most important area of analysis remains beyond the capabilities of the matrix);
in case of multi-product production, it loses such dignity as visibility, in addition, it requires separate consideration of commodity groups;
when preparing it, it may be difficult to find the necessary information on competitors' products, for example, their cost, which is not included in statistical reporting, as well as in annual reports and balance sheets of enterprises;
does not give an understanding of what will happen to the “difficult children”: whether they will become losers or leaders, how long the “stars” will burn, and the “cows” will give high milk yields;
does not take into account the nature of the market, the number of competitors and other market factors, which may lead to incorrect strategic actions;
the matrix is fully focused on product strategies and financial flows companies, while strategies in other areas are no less important for it: in technology, production, management, personnel, investments, etc.

Restrictions

The practice of using this matrix has its minuses, pluses, as well as certain boundaries of its use. Significant limitations include the following:

The high market share that has been achieved is not the only measure of success, and high level profitability is not required.
The strategic outlook for each of the company's portfolios must be equated with growth rates. It should be borne in mind that for this it is necessary that at the same time the relevant products in the strategic perspective under consideration stay in stable phases of the product life cycle.
Periodically, "Dogs" can give even more net profit than "Cash Cows". Therefore, the quadrant of the matrix gives the relative truthfulness.
To determine the future position of the organization in the market and the development of competition, it is enough to understand the significance of the relative market share according to the BCG methodology.
Under difficult conditions of competition, other analysis tools are required, in other words, a different way of building a company's strategy.

When applying the BCG matrix, it is necessary to correctly measure the relative share of the organization and the rate of market growth.

Example

Consider an example of building an enterprise matrix:

We make a list of elements that need to be analyzed. For example, assortment groups, products, enterprises or branches of companies. For each of them, it is necessary to indicate the amount of profit (sales), similar data for a number of competitors (key competitor). The data is entered into the table below.
Now you need to calculate how much the sales volumes decreased / increased in accordance with the previous period.
Market share calculation. It is necessary to calculate for each of the products the relative market share in relation to the same product from a competitor. This can be done by dividing the sales of a particular company product by the sales of the same competitor's product.

We build the BCG matrix

Best of all in Excel for such purposes is a bubble chart.

It shows relative market share on the horizontal axis. The rate of market growth is vertical. The diagram area is divided into 4 equal quadrants.

For the growth rate, the central value is 90%. For market share - 1.00. Given the data, product categories should be distributed.

"Stars" - 2 and 3 goods. The company has such categories - and this is a virtue. At this stage, only support is needed.
"Problems", "Difficult children" - 1 and 4 goods. Investments are required for the development of these names. Scheme of possible development: creation of advantage - support - distribution.
"Dead Weight" ("Dogs") - no.
"Cash cows" - 5 products. Brings a good profit, which can be used to finance other products.

We have analyzed the BCG matrix with an example.

It is very important for a company to understand which of the products bring profit to it, and which require large expenses, but do not bring anything. A very popular tool for planning a company's assortment, which helps determine the attractiveness of products, is called the BCG matrix. BCG is the first letters of the words "Boston Consulting Group", which developed this matrix. The BCG matrix is a portfolio tool: it allows you to analyze all the products that the company deals with.

The matrix allows you to analyze two parameters. The first is the growth rate of the market segment we need. This criterion tells us about the attractiveness of the market for the company at the moment. The second parameter is the market share that the company has relative to the most dangerous competitor for the company. This parameter allows us to tell how competitive a given product is in a given category. When determining these parameters, it is very important to be as honest as possible.

According to these two parameters, several groups of goods are distinguished:

· "Stars" - products with a large market share and a high growth rate. These are leading products, with the most great potential are often the most recognizable. Such products require large financial investments to promote them as long as the market continues to grow. Perhaps in the future they will become "cash cows".

· "Cash cows" - products with a large market share and low growth. These goods have good sales in a market that is no longer growing and has long been divided. Such products do not require investments in promotion, on the contrary, they give the company a large profit. It is enough for the company to maintain the position of this product for as long as possible.

· "Question marks" - products with a small market share and a high growth rate. These products are not as profitable as the leading products, but as the market grows, they also have a chance to grow. Such goods require high costs, otherwise they can quickly turn into "dogs", respectively, they must either be developed in order to capture a large market share, or deinvested. The company must analyze the potential of the product, its capabilities, and choose the right strategy.

· "Dogs" - goods with a small market share and with a low growth rate. The potential of such products is not very great: they bring little profit compared to other products. Perhaps they have some value, perhaps, on the contrary, they need to be got rid of and focused on something more attractive. Such goods require significant costs with uncertain growth prospects. Spending a lot of money on such products is not recommended.

So the BCG matrix allows us to understand the attractiveness of a particular group of goods and determine the strategy for promoting goods. It is also important to understand that it is based on one parameter - the analysis of market share, and if there are few competitors in this niche, it will not be so useful.