You are on page 1of 17

DEFINITION BCG MATRIX

Boston Consulting Group (BCG) Matrix is defined by the following authors as follows:

Table 1 Definition of BCG Matrix Pearce (2013) BCG Matrix is an approach pioneered by the Boston Consulting Group that attempted to help managers balance the flow of cash resources among their various businesses while also identifying their basic strategic purpose within the overall portfolio. It is also known as portfolio techniques. David (2012) BCG Matrix graphically portrays differences among divisions in terms of relative market share position and industry growth rate. It allows a multidivisional organization to manage its portfolio of businesses by examining the relative market share position and the industry growth rate of each division relative to all other divisions in the organization.

THEORY EXPLANATION OF BCGGROWTH-SHARE MATRIX The BCG Matrix Growth-Share Matrix positions the products and services in two ways: i. ii. The rate of growth of the market The market share of a product/service offered facing the competitors.

Table 2 Definition of market growth rate and relative market share position Market Growth Rate Pearce (2013) The projected rate of sales growth for the market being served by a particular business. David (2012) N.A Relative Market Share Position The market share of a business divided by the market share of its largest competitor. The ratio of a divisions own market share (or revenues) in a particular industry to the market share (or revenues) held by the largest rival firm in that industry.

Structure of the BCG Matrix

Quadrant II

Quadrant I

Quadrant III

Quadrant IV

Figure 1 The BCG Growth-Share Matrix

Products are classified into four categories which are Question Marks (Quadrant I), Stars (Quadrant II), Cash Cows (Quadrant III) and Dogs (Quadrant IV).

i.

Question Marks (Quadrant I) Question marks are businesses whose high growth rate gives them considerable appeal but whose low market share makes their profit potential uncertain. They have a low relative market share position, yet they compete in high-growth industry. Generally, these firms cash needs are high and their cash generation is low. At a corporate level, the concern is to identify the question marks that would increase their market share and move into the star group if extra corporate resources were devoted to them. The firms must decide whether to strengthen them by pursuing an intensive strategy (market penetration, market development, or product development) or to sell them.

ii.

Stars (Quadrant II) Stars are businesses in rapidly growing market with large market shares. They represent the organizations best long-run opportunities for growth and profitability. They have high relative market share and a high industry growth rate, which should receive substantial investment to maintain or strengthen their dominant positions. Some of the strategies for these divisions to consider are forward, backward and horizontal integration; market penetration; market development; and product development.

iii.

Cash Cows (Quadrant III) Cash cows are businesses with a high market share in low-growth markets or industries. Since they generate cash in excess of their needs, they are often milked. Many of todays Cash Cows were yesterdays Stars. The divisions should be managed to maintain their strong position for as long as possible. Strong Cash Cows may use product development or diversification for their strategies. On the other hand, as the divisions become weak, retrenchment or divestiture can become more appropriate.

iv.

Dogs (Quadrant IV) Dogs are businesses with low market share and low market growth. As they face mature markets with intense competition and low profit margins, they are managed for shortterm cash flow. These businesses are often liquidated, divested, or trimmed down through retrenchment. When a division first becomes a Dog, retrenchment can be the best strategy to pursue because many Dogs have bounced back, after strenuous asset and cost reduction, to become viable, profitable divisions.

STEPS IN DEVELOPING BCG MATRIX

There are 5 steps in developing the BCG matrix. The steps are as below: Step 1: Choose the unit Step 2: Define the firms market share Step 3: Calculate the relative market share Step 4: Find out industry growth rate Step 5: Draw the circle in a matrix

Step 1: Choose the unit. BCG matrix can be used to analyze separate business units, separate brands, products or a firm as a unit itself. Choose the unit that to be analyzed such as product of the firm, firms geographical area, customer segmentation and so forth. Unit that will be chosen will have an impact on the whole analysis. Therefore, it is essential to define the unit before starting the analysis.

Step 2: Define the firms market share. After the unit has been chosen, define the firms market share based on the unit. The market share of the firm could be calculated based on this formula:

Step 3: Calculate the relative market share. The relative market share can be calculated in term of revenue ormarket share. It is calculated by dividing own brands market share (or revenue) by the market share (or revenue) of largest competitor in that industry. The formula to calculate:

For example, if thelargest competitors market share in smartphone industry was 25% and Apple firms brand market share was 10% in the same year, Apple relative market share would be only 0.4. Relative market share is given on x-axis. It is top left corner is set at 1, midpoint at 0.5 and top right corner at 0.

Step 4: Find out industry growth rate. It can also be calculated by looking at average revenue growth of the leading industry firms. Market growth rate is measured in percentage terms. The industry growth rate can be found in industry reports. The increment or decrement of the industry growth should be determined by comparing the present years industry growth with the previous year. If there is any increment the industry growth rate would be positive (+) and vice versa. The midpoint of the y-axis is usually set at 10% growth rate, but this can be varied.

Step 5: Draw the circle in a matrix. After calculating all the measures, mark on the matrix map of the brands. Then, draw a circle for each brand. The size of the circle should correspond to the proportion of business revenue generated by that brand.

ADIDAS BCG MATRIX IN 2010 BASED ON FOUR PRODUCTS LINES


a) Footwear b) Apparel c) Hardwear Products Revenue (million $) 5389 5380 1221 11990 Percent Revenues (%) 44.95 44.87 10.18 100 Profits (million $) 402.9 402.3 212.9 1018.1 Percent Profits (%) 39.57 39.51 20.91 100 Relative Market Share 0.819 1 1 Industry Growth Rate (%) +2.34 +7.66 +3.7 -

1)Footwear 2)Apparel 3) Hardware Total

39.51% 2 % 20.91& 3 % 39.57% 1

1) ADIDAS FOOTWEAR

Years Units (billion)

Units Sales for Global Sport Footwear 2009 17.1

2010 17.5

Brands Nike Adidas Puma Under Armor

Market share 2010 (%) 48.53 39.78 8.97 2.72

Industry Growth Rate ADIDAS Footwear Formula:

= = 0.0234/2.34 Relative Market Share ADIDAS Footwear Formula:

= = 0.819/81.9%

Quadrant 2, Stars
RELATIVE MARKET SHARE POSITION High 1.0 High +20 Medium .50 Low 0.0

39.57% Medium 0 1

Star II

Question Marks I

Low -20

Cash Cows III

Dogs IV

Recommended Strategies for ADIDAS FOOTWEAR

Strategies applicable Product development Market development Market penetration Backward, Forward, or Horizontal Integration Market Penetration

Applicability

Adidas can open more outlets in Western Europe including France and Great Britain. So that, they can compete with their competitor Nike Adidas also can sponsor big event as their marketing strategies. So then, their product will acknowledge by people.

Product Development Make improvement on their Reebok toning shoes. Produce more green product to attract more customer and compete with competitor. This is because many company more focusing on green initiatives as a means of attracting customer money. Keep in improvement their current product to compete with competitor.

Market Development Adidas should penetrate and expand its market territory coverage into the areas that Adidas is currently poorly performed or not available, such as France and Great Britain.

Horizontal Integration Adidas is recommended to integrate with its competitors, to achieve better synergy. For example, Adidas can integrate or co-operate with Nike to organize a multi-sport tournament and then boost their sales at the same time.

Backward integration Adidas can make good relationship with their supplier. Therefore they can seek ownership or increased control of a firms supplier. Adidas can lower their cost if they gain ownership of their supplier.

Forward Integration Adidas should have good relationship with their distributor. Therefore, they can gain ownership or increased control over their distributors or retailer. By doing this, Adidas product will easier to be recognized and also to be in market because they already have permanent distributors.

2) Adidas Apparel 2009 (dollar in millions ) 4663 5244.7 675.13 218.7 623.86 11425.39 2010 (dollar in millions ) 5380 5036.6 876.17 235.8 772.03 12300.6 Market share 43.74 40.95 7.12 1.92 6.28

Adidas Nike U.A. ELY Li Ning Total net sales

Industry Growth Rate (%) =12300.6 mil -11425.39mil 11425.39mil =875.21 mil 11425.39mil =+7.66 Relative market share = 43.74 43.74 =1
High +20 *100 *100

39.51% 2 Medium 0

44.87%

Star II

Question Marks I

Low -20

Cash Cows III

Dogs IV

So, apparel is in stars quadrant which is high relative market share and high industry growth rate.

Recommended Strategies for Adidas (apparel) Strategies applicable Product development Market development Market penetration Backward integration Forward integration Horizontal integration Market development Build companies in Africa because is untapped market and there is no such company operating like Adidas and Nike. In 2007, Adidas has already won the race against Nike in India, Japan and china. Applicability X X

Product development Adidas should produce the apparel which can insulate the wearer from cold while whisking away sweat and keep athlete cool in warm climates. Produce T-shirts and fabrics that can control odour. Produce the apparel which lighter can be parallel with adidas mission which to provide our entire athlete with the lightest product to make them faster and help them to improve their performance.

Market penetration Sponsoring more local sports events in existing markets it can develop a brand association with the target customers and can bring more customers in the market. Adidas can further improve this strategy by providing gifts to the winning teams in the matches and after the team won the match it can simply communicate its message that these players won because they were using Adidas Products. Adidas expects to have over 800 stores in Russia/ CIS by the end of the 2011. By 2015, at least 400 stores will be added across Russia, bringing the total store number to more than 1200.

Backward, Forward or Horizontal Integration Backward integration No need to implement.

Forward integration Adidas plans to add 2,500 stores in China between 2011 and 2015 as the company widens its distribution in that country from 500 cities currently to over 1,400. As part of its new forward integration strategy in China, Adidas plans also to boost its presence in basketball, a sport that Adidas emphasizes less than competitors such as Nike and Li Ning Company, Chinas leading sports-apparel maker.

Horizontal integration No need to implement. Adidas had implemented horizontal integration with Reebook in 2005 and currently Adidas itself is sufficient to maintain its largest market share position in the industry.

3) Adidas Hardware Year Nike, Adidas, Net Revenue, 2010 755.39mil l Net Revenue, 2009 811.94mil l Market share (%) 28.9 1,221mil l 1,076mil l 46.8 1.3 38.8mill Under Armour, 33.1mill Callaway Golf, 535.21mil l 535.51mil l 20.5 2.4 52mill 62.73mill Li Ning,

Relative market share = = =1 Year Industry net sales 2009, 2,514.25 2010, 2,607.43

Industry Growth Rate = = = 3.7%

Thus, located at Quadrant 2 (STAR). Stars are businesses in rapidly growing market with large market shares. They represent the organizations best long-run opportunities for growth and profitability. They have high relative market share and a high industry growth rate, which should receive substantial investment to maintain or strengthen their dominant positions. Some of the

strategies for these divisions to consider are forward, backward and horizontal integration; market penetration; market development; and product development.

RELATIVE MARKET SHARE POSITION High 1.0 High +20 Medium .50 Low 0.0

20.91% Medium 0 3

Star II

Question Marks I

Low -20

Cash Cows III

Dogs IV

Recommended Strategies for Hardware Strategies applicable Backward integration Forward integration Horizontal integration Market penetration Market development Product development Backward integration Applicability / x x / / /

Backward integration is highly recommended to be aplied by Adidas because they can seek ownership of suppliers that produce raw materials for hardware products especially balls. Adidas can make an agreement with suppliers from China or Taiwan to increased control of a firms suppliers; therefore can improve the performance of production for hardware product due to collaboration from two parties like suppliers and Adidas itself. Adidas will easily supervise and control quality of materials and quantity of productions accordance with target of company.

Horizontal integration

Horizontal integration is not recommended for Adidas because they already become leader in hardware products in year 2010 as their relative market share is one. Thus, they do not need horizontal integration strategy in which acquires other company in the same industry. Relative market share = = =1 Forward integration

Forward integration is one of strategies that involve a form of vertical integration whereby activities are expanded to include control of the direct distribution of its products. Therefore, it is not recommended for Adidas to implement this strategy since Adidas already gain control on their own retail stores at Western Europe, European Emerging Markets, North America, Greater China, Other Asian markets and Latin America. Trend sales for year 2009 and 2010 from all retails stores also increased from year to year, thus can directly support that Adidas had able to control their own stores throughout the world.

Source: http://www.adidas-group.com Market penetration - Open new retail store at existing country. Example in Malaysia, adidas store is only located at several place such at Kuala Lumpur and Penang. AG can open new store at other state of Malaysia for example Sabah, Sarawak, Terengganu and so forth.

Market development - Open new store at country where the adidas store not there yet. Example: at Brunei, Mexico and many more. - Advertising in other media. Adidas using an event to advertise their product. Use other media such as television. Product development - Can modify (change color, motion, sound, odor, form and shape) and substitute the product (other ingredients process, power). For example, make the ball (football) more dynamic so that it is easy to kick nicely.