BCG Matrix

A Business Portfolio Tool

By:
Shruti Gupta

What is Business
Portfolio?

Methods of Portfolio
Planning
The two best-known portfolio planning
methods are from the Boston
Consulting Group and by General
Electric/Shell:
BCG Matrix
GE Matrix

BCG Matrix An
Introduction

The
BCG
matrix
model
was
developed by Bruce Henderson of
the Boston Consulting Group in the
early 1970's.
The BCG matrix/ BCG model is the
most renowned corporate portfolio
analysis tool.

What is BCG Model?

 The first step in BCG Matrix is to

identify the various Strategic Business
Units ("SBU's") in a company portfolio.
According
to
this
technique,
businesses or products are classified
as low orhigh performers depending
upon their market growth rate and
relative market share.
Relative market share - this serves as a
measure of SBU strength in the market
Market growth rate - this provides a
measure of market attractiveness

WHY BCG MATRIX?

To assess:
Profiles of products/businesses
The cash demands of products
The development cycles of products
Resource allocation and divestment
decisions

It is aportfolio planning modelwhich is

based on the observation that a
companys business units can be
classified in to four categories:
STARS
QUESTION MARKS
CASH COWS
DOGS

BCG Matrix

THE BCG MATRIX

COMPONENTS
Stars High market share and High
growth rate (high competition)
Cash Cows High market share but
low growth rate (most profitable)
Question marks Low market
share and high growth rate
(uncertainty)
Dogs Low market share and low
growth rate (less profitable or may
even be negative profitability)

STARS
HIGH GROWTH, HIGH MARKET SHARE
Stars are leaders in business.
They require heavy investment to maintain its
large market share.
It leads to a large amount of cash
consumption and cash generation.
Attempts should be made to hold the market
share otherwise the star willbecome a cash
cow.

CASH COWS
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.

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
Question marks have potential to
become star and eventually cash cow
but can also become a dog.
Investments should be high for question
marks.

DOGS
LOW GROWTH, LOW MARKET SHARE
Dogs are the cash traps.
Dogs do not have potential to bring
in much cash.
Business is situated at a declining
stage.

Strategies based on the

BCG Matrix

There are four strategies possible for any product / SBU under
the BCG analysis. These are:
1)

2)

3)

4)

Build By increasing investment, the product is given an

impetus such that the product increases its market share.
Make further investments (for example, to maintain Star
status, or to turn a Question Mark into a Star).
Hold The company cannot invest. Maintain the status
quo (do nothing). The company invests just enough to
keep the SBU in its present position. Example Holding a
star there itself as higher investment to move a star into
cash cow is currently not possible.
Harvest Best observed in the Cash cow scenario,
wherein the company reduces the amount of investment
and tries to take out maximum cash flow from the said
product which increases the overall profitability.
Divest Best observed in case of Dog quadrant products
which are generally divested to release the amount of
money already stuck in the business.

ADVANTAGES OF BCGMATRIX
It is simple and easy to understand.
It helps to quickly and simply screen
the open opportunities, and helps in
thinking as to how one 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.

LIMITATIONS OF BCG-MATRIX
It uses only two dimensions i.e.,
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.

Success Sequence in
BCG Matrix

Disaster sequence in
BCG Matrix

Example: COCA COLA

Coca-cola Company returned to India in 1993 after a gap of 16

years after nourishing the global community with the worlds
largest selling soft drink since 1886.
HCCB (Hindustan Coca Cola Beverages Ltd.) serves in India some
of the most recalled brands across the world including names
such as Coca-cola, Sprite, Fanta, Thumbs up, Limca, Maaza and
Kinley (packaged drinking water), Minute maid pulpy orange, etc.
The business system of the company in India directly employs
approximately 6,000 people, and indirectly creates employment
for many more. Coca-Cola India has increased its market share
from 57 percent in the carbonated soft drink (CDs)category in
2005 to 61 percent at the end of December 2006.
Coca Cola was the first in the country to launch cans, plastic cap
leak proof bottles and full length delivery crates.
Ranking: They own 4 of the worlds top 5 non-alcoholic sparkling
beveragebrands: Coca-Cola, Diet Coke, Sprite and Fanta.
Company Associates: 90,500 worldwide (December 31, 2007)
Operational Reach: 200+ countries
Consumer Servings (per day): 1.5 billion.

Mission: Our Roadmap starts with our mission, which is

enduring. It declares our purpose as a company and serves as

the standard against which we weigh our actions and decisions.
To refresh the world..
To inspire moments of optimism and happiness
To create value and make a difference

Vision: Our vision serves as the framework for our Roadmap

and guides every aspect of our business by describing what we

need to accomplish in order to continue achieving sustainable,
quality growth.
People: Be a great place to work where people are inspired to
be the best they can be
Portfolio: Bring to the world a portfolio of quality beverage
brands that anticipate and satisfy peoples desires and needs
Partners: Nurture a winning network of customers and
suppliers, together we create mutual, enduring value
Planet: Be a responsible citizen that makes a difference by
helping build and support sustainable communities
Profit: Maximize long-term return to share owners while being
mindful of our overall responsibilities
Productivity: Be a highly effective, lean and fast-moving
organization

PRODUCT LINE OF COCA-COLA IN

INDIA

SWOT Analysis of Coca

Cola

Strength
Strong leading brands with high level of
consumer acceptance this allows the
company to extend its products to attract
new customers
Large scale of operations Coca-Cola
products are already sold in 200 countries.
Leading market position thebrand has a
large market about 5% ahead of its main
competitorPepsiCo.
Strong cash flows from operations- the brand
is able to create over $ 50million a day.

Weakness
Impact of Financial market volatility
which in turn affects the liquidity
position of the company.
Slow decision making can give
competitive
advantage
to
the
competitors such as PepsiComay be
the first to introduce aproduct.

Opportunities
Global growth in non-alcoholic ready-todrink beverage industry- this trend is set
to generate retail sale in the industry to
more than $1trillionby 2020.
Growing global bottle watermarket
Booming global functional drinks market
e.g. energy drink.
Target the ageing customers and the
young and more environmental concern
people

Threat
Economic climate countries from all
over the world have felt the impacts of
the current recession. This may be a
problem for Coke, which derives
approximately 75% of its sales from
outside North America.
Health and wellness has created a
concern
for
carbonated
products
specially in the USA and Europe.
Overdependence on bottlingpartners
Intense competition either local or
global market.

BCG-MATRIX FOR THE

PRODUCT LINE OF COCA-COLA
STARS - HIGH GROWTH, HIGH MARKET SHARE

Thumbs up, Maaza, Kinley

CASH COWS- LOW GROWTH, HIGH MARKET SHARE

Limca, Coca Cola

QUESTION MARKS- HIGH GROWTH , LOW MARKET SHARE

Fanta, sprite

DOGS- LOW GROWTH, LOW MARKET SHARE

Diet Coke, Minute maid

Depiction of BCG Matrix in a

PLC
.

From the diagram we can conclude that:INTRODUCTION STAGE: FANTA & SPRITE are at the introduction stage , as both are
much new in the market as compared to thumbs up and
limca.
GROWTH STAGE:-
THUMBS UP, KINLEY & MAZAA are at the growth stage
having high growth and low market share.
MATURITY STAGE:
LIMCA, COCA-COLA are at the maturity stage having low
growth but high market share.
DECLINE STAGE: DIET COKE, MINUTE MADE PULPY ORANGE & KINLEY SODA
are at the decline stage, proving to be non profitable
products having low growth and low market share.

Conclusion
LIFE CYCLE: To be able to market its product properly,
a firm must be aware of the product life cycle of its
product. The standard product life cycle tends to
have
fivephases:
Development,
Introduction,
Growth, Maturity and Decline.
Star Strategy: Invest profits for future growth and for
earning more of market share and profits.
Cash Cow Strategy: Use profits to finance new
products and growth elsewhere.
Question Mark Strategy: Either invest heavily in order
to push the products to star status, or divest in order
to avoid it becoming a Dog.
Dog Strategy: Either invest to earn market share or
consider disinvesting.
Thus the BCG matrix is the best way 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.

Thank you
Any Questions pls?
Disclaimer Clause: Views expressed in this presentation
views of the author do not necessary reflect those of the
Institute.