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What is the BCG matrix and how does the BCG model work?
Placing products in the BCG matrix results in 4 categories in a portfolio of a company: BCG STARS (high growth, high market share) - Stars are defined by having high market share in a growing market. - Stars are the leaders in the business but still need a lot of support for promotion a placement. - If market share is kept, Stars are likely to grow into cash cows. BCG QUESTION MARKS (high growth, low market share) - These products are in growing markets but have low market share. - Question marks are essentially new products where buyers have yet to discover them. - The marketing strategy is to get markets to adopt these products. - Question marks have high demands and low returns due to low market share. - These products need to increase their market share quickly or they become dogs. - The best way to handle Question marks is to either invest heavily in them to gain market share or to sell them. BCG CASH COWS (low growth, high market share) - Cash cows are in a position of high market share in a mature market. - If competitive advantage has been achieved, cash cows have high profit margins and generate a lot of cash flow. - Because of the low growth, promotion and placement investments are low. - Investments into supporting infrastructure can improve efficiency and increase cash flow more. - Cash cows are the products that businesses strive for. BCG DOGS (low growth, low market share) - Dogs are in low growth markets and have low market share. - Dogs should be avoided and minimized. - Expensive turn-around plans usually do not help. And now, let's put all this into a picture:
The first problem can be how we define market and how we get data about market share A high market share does not necessarily lead to profitability at all times The model employs only two dimensions market share and product or service growth rate Low share or niche businesses can be profitable too (some Dogs can be more profitable than cash Cows) The model does not reflect growth rates of the overall market The model neglects the effects of synergy between business units Market growth is not the only indicator for attractiveness of a market
There are probably even more aspects that need to be considered in a particular use of the BCG model.
Where can I find more information about the BCG matrix model?
We recommend reading the following book: Book: Carl W. Stern, George Stalk - Perspectives on Strategy This book was published by the Boston Consulting Group.
We can recommend reading about the SWOT model, SPACE matrix, and Michael Porter's Five Forces model. The BCG matrix model has some similarities with the Internal-External IE matrix method.
Buying government securities: When a bank buys bonds from businesses or the public, the transaction result is similar to granting a loan This is because buying bonds is simply loaning out X-sum of dollar equivalent to the value of the bonds, which in terms, increase bank's asset by X-dollars and increase checkable deposits by Xdollars When a bank sells bonds to businesses or the public, the increase in money supply is canceled Buying government bonds decreases the money supply and thereby pushes up interest rates and reduces investment. governments will do this when they try to curb inflation.
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Profits, liquidity and the Federal Funds Market: Bank has two conflicting goals: Earn profit by making loans and buying securities Balance liquid assets and excess reserves; therefore, must restrict lending When banks lend temporary excess reserves held at the Federal Reserve Banks to other commercial banks, it achieves the two conflicting goals because first it is earning a profit from the interest and second it is a transaction of excess reserves, which preserves the reserve requirement If banks don't have enough excess reserves at the end of the day to fulfill the 10% requirement (in the US) set by the Fed, they must borrow from other banks in order to keep at least 10% of their total checkable deposits. They can also borrow from the Fed, but that's usually a last resort.