BCG Matrix or BCG analysis

BCG analysis is mainly used for Multi Category / Multi Product companies. All categories and products together are said to be Business portfolio. Thus, the various entities of your business portfolio may move for ard by a different pace and ith a different strategy. The BCG analysis actually helps you in deciding hich entities in your business portfolio are actually profitable, hich are duds, hich you should concentrate on and hich gives you a competitive advantage over others. !nce you "no hich businesses stand here in your business portfolio, you also come to "no hich businesses need investments, hich needs harvesting #ma"ing money$, hich needs divesting #reducing investment$ and hich needs to be completely ta"en out of the business portfolio. %or a ma&or organi'ation li"e ()*, +TC etc hich have multiple categories and ithin the categories, they have multiple lines of products, the BCG analysis becomes very important. At a holistic level, they get to ma"e a decision on hich product to continue and hich product to be divested. ,hich product can give ne returns ith good investment, and hich products are reaching the ape- of mar"et share. BCG Growth Share Matrix . The BCG gro th share matrias developed by (enderson of the BCG group in /012s. The matri- classifies businesses / 3B)4s by 1) Relative Market Share . The mar"et share of the business / 3B) / Product in the mar"et as compared to its competitors and overall product / category. 2) Market growth rate . The gro th rate of the industry as a hole is ta"en into consideration from hich the gro th rate of the product is e-trapolated. This gro th rate is then pitched on the graph. Thus by having 5 basic but at the same time very important factors on 6 a-is and 7 a-is, the BCG matri- ma"es sure that the classifications are concrete. Calculating the Mar"et gro th rate comprises of both industry gro th and product gro th rate thereby giving a fair "no ledge of here the product / 3B) stands in comparison to the +ndustry. The mar"et share on the other hand comprises of the competition and the product potential in the mar"et. Thus hen e consider gro th rate and mar"et share together, it automatically gives us an overvie of the competition and the industry standards as ell as an idea of hat the future might bring for the product. !nce the businesses have been classified, they are placed into four different 8uadrants of the matri-. The 8uadrants of the matri- are divided into

1) Cash Cows . (igh mar"et share but lo gro th rate #most profitable$. 2) Stars . (igh mar"et share and (igh gro th rate #high competition$

3) Question marks . *o mar"et share and high gro th rate #uncertainty$ 4) ogs . *o mar"et share and lo gro th rate #less profitable or may even be negative profitability$
!n the basis of this classification, strategies are decided for each 3B) / Product. *ets discuss the characteristics and strategies of each 8uadrant in detail. 1) Cash Cows . The cornerstone of any multi product business, cash co s are products hich are having a high mar"et share in a lo gro ing mar"et. As the mar"et is not gro ing, that cash co gains the ma-imum advantage by generating ma-imum revenue due to its high mar"et share. Thus for any company, the cash co s are the ones hich re8uire least investment but at the same time give higher returns. These higher returns enhance the overall profitability of the firm because this e-cess revenue can be used in other businesses hich are 3tars, 9ogs or :uestion mar"s. 3trategies for cash co . The cash co s are the most stable for any business and hence the strategy generally includes retention of the mar"et share. As the mar"et is not gro ing, ac8uisition is less and retention is high. Thus customer satisfaction programs, loyalty programs and other such promotional methods form the core of the mar"eting plan for a cash co product / 3B). 2) Stars . The best product hich comes in mind hen thin"ing of 3tars is the telecom products. +f you loo" at any top ; telecom company, the mar"et share is good but the gro th rate too is good. Thus because these t o factors are high, the telecom companies are al ays in competitive mode and they have to &uggle bet een investment and harvesting vis investing money and ta"ing out money time to time. )nli"e cash co s, 3tars cannot be complacent hen they are top on because they can immediately be overta"en by another company hich capitali'es on the mar"et gro th rate. (o ever, if the strategies are successful, a 3tar can become a cash co in the long run. 3trategies for 3tars . All types of mar"eting, sales promotion and advertising strategies are used for 3tars. This is because in cash co , already these strategies have been used and they have resulted in the formation of a cash co . 3imilarly in 3tars, because of the high competition and rising mar"et share, the concentration and investment needs to be high in mar"eting activities so as to increase and retain mar"et share. 3) Question Marks . 3everal times, a company might come up ith an innovative product hich immediately gains good gro th rate. (o ever the mar"et share of such a product is un"no n. The product might lose customer interest and might not be bought anymore in hich case it ill not gain mar"et share, the gro th rate ill go do n and it ill ultimately become a 9og. !n the other hand, the product might increase customer interest and more and more people might buy the product thus ma"ing the product a high mar"et share product. %rom here the product can move on to be a Cash Co as it has lo er competition and high mar"et share. Thus :uestion mar"s are products hich may give high returns but at the same time may also flop and may have to be ta"en out of the mar"et. This uncertainty gives the 8uadrant the name <:uestion Mar"=. The ma&or problem associated ith having :uestion mar"s is the amount of investment hich it might need and hether the investment ill give returns in the end or hether it ill be completely asted.

3trategies for :uestion mar"s . As they are ne entry products ith high gro th rate, the gro th rate needs to be capitali'ed in such a manner that 8uestion mar"s turn into high mar"et share products. >e Customer ac8uisition strategies are the best strategies for converting :uestion mar"s to 3tars or Cash co s. %urthermore, time to time mar"et research also helps in determining consumer psychology for the product as ell as the possible future of the product and a hard decision might have to be ta"en if the product goes into negative profitability. 4) ogs . Products are classified as dogs hen they have lo mar"et share and lo gro th rate. Thus these products neither generate high amount of cash nor re8uire higher investments. (o ever, they are considered as negative profitability products mainly because the money already invested in the product can be used some here else. Thus over here businesses have to ta"e a decision hether they should divest these products or they can revamp them and thereby ma"e them saleable again hich ill subse8uently increase the mar"et share of the product. 3trategies for 9ogs . 9epending on the amount of cash hich is already invested in this 8uadrant, the company can either divest the product altogether or it can revamp the product through rebranding / innovation / adding features etc. (o ever, moving a dog to ards a star or a cash co is very difficult. +t can be moved only to the 8uestion mar" region here again the future of the product is un"no n. Thus in cases of 9og products, divestment strategy is used.

Se!uen"es in BCG Matrix

Su""ess Se!uen"e in BCG Matrix . The 3uccess se8uence of BCG matri- happens hen a 8uestion mar" becomes a 3tar and finally it becomes a cash co . This is the best se8uence hich really give a boost to the companies profits and gro th. The success se8uence unli"e the disaster se8uence is entirely dependent on the right decision making. isaster se!uen"e in BCG Matrix . 9isaster se8uence of BCG matri- happens hen a product hich is a cash co , due to competitive pressure might be moved to a star. +t fails out from the competition and it is moved to a 8uestion mar" and finally it may have to be divested because of its lo mar"et share and lo gro th rate. Thus the disaster se8uence might happen because of wrong decision making. This se8uence affects the company as a lot of investments are lost to the divested product. Along ith this the money coming in from the cash co hich is used for other products too is lost. Strategies #ase$ on the BCG Matrix%

There are four strategies possible for any product / 3B) and these are the strategies hich are used after the BCG analysis. These strategies are /$ Build . By increasing investment, the product is given an impetus such that the product increases its mar"et share. ?-ample . Pushing a :uestion mar" into a 3tar and finally a cash co #3uccess se8uence$ 5$ (old . The company cannot invest or it has other investment commitments due to hich it holds the product in the same 8uadrant. ?-ample . (olding a star there itself as higher investment to move a star into cash co is currently not possible. @$ (arvest . Best observed in the Cash co scenario, herein the company reduces the amount of investment and tries to ta"e out ma-imum cash flo from the said product hich increases the overall profitability. A$ 9ivest . Best observed in case of 9og 8uadrant products hich are generally divested to release the amount of money already stuc" in the business. Thus the BCG matri- is the best ay for a business portfolio analysis. The strategies recommended after BCG analysis help the firm decide on the right line of action and help them implement the same.

/. ?-ampleB BCG M&'R() o* +estle, According to >estle, the relative mar"et share and mar"et gro th rates of different productsare given belo BC >ame Delative Mar"et 3hare Mar"et Gro th Date Ceralac @/.5E A;E >estle Mil" 5/E @0E Fit Fat /0E @AE Maggi >oddles /G.1HE HAE >estle 9ahi @E /5E BCG M&'R() -igure

Market Growth

Star Ceralec

III
>estle Mil" Fit Fat og >estle 9ahi

Cash Cow Maggi >oddles

Share

Relative Market

ConclusionsB Cerale", Ceralec is one of the leading baby food products.+t has itnesses 8uite a long hold on mar"et shareand it s a ma&or contributir for >estle. +estle Milk an$ .it .at, Delative mar"et share of >estle mil" and Fit Fat is lo as compared ith its gro th that4s hy they are lying under head :uestion mar". Maggi +o$$les, Gro th rate of Maggi >oddles is lo as compared ith its Delative mar"et share that4s hy they are lying under head :uestion mar". +estle ahi, +ts both relative mar"et share and gro th rate are lo as compared ith other products that4s hy it is lying under head 9og.

/xam0le 2, BCG Matrix 1nilever 2vt lt$%

According to the )nilever Pvt. *td, the relative mar"et share and mar"et gro th rates of different products of unilever are given belo BC +ame Relative Market Market Growth Share Rate Brooke #on$ 413 44%533 su0reme .norr noo$le 413 263 7ux 213 26%143 Sur* /x"el 233 28%383 7i*e#uoy sham0oo 143 94%533 Rexona $eo$orant 23 93 BCG M&'R() -igure, Market growth Star Broke #on$ :ig su0reme h III

7i*e#uoy sham0oo

.norr noo$les

low

Cash Cow Sur* ex"el 7ux

og Rexona $eo$orant

rate

:igh low Relative Market Share Con"lusions, There are the conclusions for )nilever Pvt. *td products, ho lying in the BCG matri- is given belo B 1% Sur* /x"el ; 7ux , they are

The mar"et share value of 3urf e-cel and *u- are high and relative mar"et gro th rate of 3urf e-cel and *u- are lo , that is hy 3urf e-cel and *u- are lying in BCG Matri- at Cash co point. 2% Broke #on$ su0reme ; .norr noo$les, The mar"et share value of Bro"e bond supreme and Fnoor noodles are high and relative mar"et gro th rate of Bro"e bond supreme and Fnoor noodles are high, that is hy Bro"e bond supreme and Fnoor noodles are lying in BCG Matri- at 3tar point. 3% 7i*e#uoy Sham0oo, The mar"et share value of *ifebuoy 3hampoo is lo and relative mar"et gro th rate of *ifebuoy 3hampoo is high, that is hy *ifebuoy 3hampoo is lying in BCG Matri- at<<< Point. At this point, Company ma"es their investment on this product to get the point of CA3( C!, and 3TAD in BCG matri-. A. Rexona $eo$orant, The mar"et share value of De-ona deodorant is lo and relative mar"et gro th rate of De-ona deodorant is lo , that is hy De-ona deodorant is lying in BCG Matri- at 9og point.

/xam0le 3, ':/ '&'& GR=12

The BCG Gro th 3hare matri- uses the dimensions of relative mar"et share and the mar"et gro th rate to establish a 5J5 matricontaining A main 8uadrants KL< 3tars #high mar"et gro th, high mar"et share$, Cash Co s #lo mar"et gro th, high mar"et share$, :uestion mar"s #high mar"et gro th, lo mar"et share$ and 9ogs #lo mar"et gro th, lo mar"et share$. The ideal strategy is to hold

on to the 3tars and the Cash Co s, divest the 9ogs and ta"e a call on the :uestion Mar"s #hold/divest$. ,e have conducted a detailed analysis #using the BCG Matri-$ of the portfolio of companies in the Tata Group. This involved analy'ing the sectors in hich the Tata group operates as ell as the companies in the Tata Group ithin each sector. ,e studied the operational and financial performances of each company to understand their gro th stories. 3pecial emphasis as laid on identifying the organic and inorganic gro th routes pursued by each of these companies under the Tata umbrella. The conclusions dra n about these companies are based on analysis of the global strategy of the Tata group and on detailed conversations ith top e-ecutives in the Tata Group. The analysis reveals that Tata 3teel, Tata Po er, Tata Motors and +ndian (otels emerge as clear 3tars #high mar"et gro th, high mar"et share$. (ence, they should be retained and the investment in these companies should be increased. Tata Chemicals and Tata Tea emerge as the Cash Co s #lo mar"et gro th, high mar"et share$ and should be held on to for the time being. 3ome of the :uestion Mar"s #high mar"et gro th, lo mar"et share$ are Tata Teleservices, Moltas and Tata Communications. These results are sho n in ?-hibit / belo .

Exhibit 1. Portfolio Analysis of the Tata Group using the BCG MatriThe profitability of the Tata Group in the telecommunication sector has sho n a consistent decline from /2E in 522@ to AE in 522HC21. 9espite the telecom boom in +ndia, the 8uestion on the presence of the Tata Group in the telecommunications sector arrants further discussion. %or the Tatas, the broad ob&ective behind entering any sector is to be among the top @ in that sector. 9espite having had a

presence for many decades in the consumer durables segment, the Tatas have been unable to capture the leadership position in the segment through Moltas. Moreover, the gro th registered by Moltas over the past fe years has also been far from impressive hich necessitates the need to critically evaluate its performance in this segment. +n addition, the 8uestion of operating so many companies under the Tata Group needs to be loo"ed into. 9oes it ma"e sense to have so many companies in the first placeI 3hould there be a reloo" into the 8uestion mar"s li"e Moltas, Tata Communications and Tata TeleservicesI These are hard 8uestions that need to be ans ered as the group "eeps going for ard. ,ith close to /22 companies under one roof, the 8uestion arises hether all of them should be under the Tata Group or should some be spun off. +s There Any Advantage of Being a Part of the 3ame Business GroupI According to Fhanna and Palepu 2 #522G$, business groups can add significant value. %irstly, business groups use funds and management talent from e-isting operations to start ne ventures #thereby negating the need for venture capital firms$. 3econdly, large business groups can nurture inChouse management talent that can be shifted across individual group companies. Thirdly, business groups create value by developing a common group brand that stands for orld class 8uality and customer service. According to D Gopal Frishnan, ?-ecutive 9irector, Tata 3onsN The estimated value of the Tata brand is about +>D /22 billion. %or an individual company to use the Tata brand name, they need to meet a set of 8uality standards and business values. (ence, it is in the interest of the individual firms to be a part of the Tata Group to derive advantages from the Tata brand. Conclusion As the Tata Group continues to follo the inorganic route to gro th, the challenges of integration need to be carefully dealt ith. +t is necessary for the group to ta"e a loo" at some of their 8uestion mar"s li"e Moltas, Tata Teleservices and Tata Communications. %inally, given the brand e8uity of the TataO name, it is in the interest of ne er companies to remain under the Tata Group. +n the course of time, the group is e-pected to ma"e many more ac8uisitions across the sectors it currently operates in, particularly in 3outh ?ast Asia, ?urope and the )nited 3tates. Given the relatively brighter prospects about the +ndian economy compared to other developed economies, the future strategy also calls for a definite focus on the +ndian mar"et in sectors li"e steel, automobiles and infrastructure. The future strategy of the Tata group has been summari'ed 8uite elegantly by Datan Tata in the follo ing statementB

We have two guiding arrows. One points overseas, where we want to expand markets for our existing products. The other points right here, to India, where we want to exp ore the arge mass market that is emerging !"# not b$ fo owing but b$ breaking new ground in product deve opment and seeing how we can do something that has been done before.