SBU Strategies, Portfolio Analysis BCG & GE

Winning Markets:
Market Oriented Strategic Planning
Principles of Marketing- Philip Kotler

Basumitra Choudhury 1
Marketing Strategy
1. Vision
2. Mission
3. Corporate and Division Strategic Planning
4. 4Ps to 7Ps
5. S.T.P.
6. Positioning
7. BCG Matrix
8. GE Matrix
9. Business Integration
10.Ansoff’s Matrix
11.PLC
12.Porter’s value chain
13. Porter’s five forces
14. FCB Model
It is more important
to do what is
strategically right
than what is
immediately profitable
Philip Kotler
Chapter objective
 In this chapter we examine the following questions
 How is strategic planning carried out at the corporate &

divisional level?
 How is business carried out at business unit level?
 What are the major steps in the marketing process?
 How is planning carried out at the product level?
 What does a marketing plan include?
Strategic planning consists of 3 actions broadly –
1. Managing a companies’ portfolios
2. Assessing each business’ strength (skill, resource,

competence) by considering the market’s growth
rate and the company’s position fit in that market.
3. Formulating a game plan for each of its businesses

to achieve long-term objectives.
Strategic Planning is done in 4 levels –
1.Corporate Strategic Plan – It decides what resources to

allocate to which business & what businesses to diversify
into
2.Division Plan – It decides how much funds to allocate

to the SBUs.
3. Strategic Business Units (SBU)Plan –
4.Product Plan –
Corporate and Division Strategic Planning
This basically subsumes 4 activities –
1.Defining corporate mission
2.Establishing SBU
3.Assigning resources to each SBU
4.Planning new businesses, downsizing older ones
Defining the Corporate Mission –
A good mission statement provides employees with a shared sense
of purpose, direction and opportunity.
A good mission statement has 3 characteristics –
1.They focus on a limited number of goals
2.They stress on major policies and values the company wants to

honor
3.They define the major competitive scope within which the

company will operate.
Some of such scopes are : industry scope, products scope,
geographical scope, etc
Mission Statement:
to improve the quality of human life by
enabling people
to do more, feel better and live longer.
Mission
Mead Johnson’s mission is to create
nutritional brands and products trusted to
give infants and children the best start in life.
Vision
Mead Johnson’s vision is to be the world’s
premiere pediatric nutrition company
Tata Group
Type Privately held company

Industry Conglomerate
Founded 1868
Founder(s) Jamsetji Tata
Headquarters Mumbai, Maharashtra, India
Area served Worldwide
Key people Cyrus Pallonji Mistry
(Chairman)
Products Airline, Automotive, steel, IT,
Electricity generation, Chemicals,
Beverages, Telecom, Hospitality,
Retail, Consumer goods,
Engineering, Construction, Financial
services
Revenue US$ 100 billion (2011–12)
Profit US$6.23 billion (2011–12)
[
Total assets US$77.7 billion (2011–12)
Owner(s) Tata Sons (Promoter)
[2]
Employees 455,947 (2011–12)
Subsidiaries List of subsidiaries
Website www.tata.com
Tata Group It encompasses seven business sectors:
1. Communications and Information technology
2. Engineering
3. Materials
4. Services
5. Energy
6. Consumer products and
7. Chemicals.
It has operations in more than 80 countries across 6 continents.
Tata Group has over 100 operating companies each of them
operates independently. 32 are publicly listed.
The major Tata companies are Tata Steel, Tata Motors, Tata
Consultancy Services (TCS), Tata Power, Tata Chemicals, Tata
Global Beverages, Tata Teleservices, Titan Industries, Tata
Communications and Taj Hotels.
Establishing SBUs –
Companies should define business units in terms of
needs, not products.
A business can de defined in terms of 3 dimensions

1. Customer groups,
2. Customer needs and
3. Technology.
Characteristics of an SBU are –

It is independent in terms of the policies it needs
It has its own set of competitors
Connecting with Consumers
1. Market Segmentation
2. Market Targeting
3. Market Positioning
Developing the Marketing Mix
People: Employees,
Management,
Culture, Customer
service
Process: especially
relevant to service
industry
Physical
environment
Smart, Run down,
Interface, Factories
Assigning Resources to each SBU
BOSTON CONSULTING GROUP MATRIX (BCG)
Boston Consulting Group Matrix is developed by Bruce

Henderson of the Boston Consulting Group in the early 1970’s.
According to this technique, businesses or products are

classified as low or high performers depending upon their
market growth rate and
relative market share.
To understand the Boston Matrix you need to understand

how market share and market growth interrelate.
MARKET SHARE
•Market share is the percentage of the total market that

is being serviced by your company, measured either
revenue terms or unit volume terms.
•RELATIVE MARKET SHARE
•RMS = Business unit sales this year
Leading rival sales this year
•The higher your market share, the higher proportion of
the market you control.
MARKET GROWTH RATE
 Market growth is used as a measure of a market’s

attractiveness.
 MGR = Individual sales - Individual sales
this year last year
Individual sales last year
 Markets experiencing high growth are ones where
the total market share available is expanding, and
there’s plenty of opportunity for everyone to make
money.
THE BCG GROWTH-SHARE MATRIX
It is a portfolio planning model which is based

on the observation that a company’s business
units can be classified in to four categories:
 Stars
 Question marks
 Cash cows
 Dogs
It is based on the combination of market

growth and market share relative to the
next best competitor.
BCG Matrix
STARS: in High growth market, High market share
Stars are leaders in business.
They also require heavy investment, to maintain its

large market share.
It leads to large amount of cash consumption and

cash generation.
Attempts should be made to hold the market

share otherwise the star will become a CASH COW.
CASH COWS: in Low growth market, 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.
DOGS: In Low growth Market, Low market share
Dogs are the cash traps.
Dogs do not have potential to bring in much cash.
Number of dogs in the company should be minimized.
Business is situated at a declining stage.
QUESTION MARKS: In High growth market, Low market share
Most businesses start of as question marks.
They will absorb great amounts of cash if the market

share remains unchanged, (low).
Why question marks?
Question marks have potential to become star and

eventually cash cow but can also become a dog.
Investments should be high for question marks.
SIMCON- SIMSREE Consulting Club
MONTHLY ARCHIVES: DECEMBER 2013
WHY BCG MATRIX ?
To assess :
Profiles of products/businesses
The cash demands of products
The development cycles of products
Resource allocation and divestment decisions
MAIN STEPS OF BCG MATRIX
Identifying and dividing a company into SBU.
Assessing and comparing the prospects of each

SBU according to two criteria :
1. SBU’S relative market share.
2. Growth rate OF SBU’S industry.
Classifying the SBU’S on the basis of BCG matrix.
Developing strategic objectives for each SBU.
BENEFITS
BCG MATRIX is simple and easy to understand.
It helps you to quickly and simply screen the

opportunities open to you, and helps you think
about how you can make the most of them.
It is used to identify how corporate cash resources

can best be used to maximize a company’s future
growth and profitability.
LIMITATIONS
BCG MATRIX uses only two dimensions

1. Relative market share and
2. 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.
CONCLUSION
Though BCG MATRIX has its

limitations it is one of the most
FAMOUS AND SIMPLE portfolio
planning matrix, used by large
companies having multi-products.
Portfolio analysis- Strategic Business Units
GE Model frame work
Portfolio analysis- Strategic Business Units
GE Model frame work
A business portfolio is the collection of Strategic Business Units (SBU) that

make up a corporation.
The optimal business portfolio is one that fits perfectly to the company’s
strength and helps to exploit the most attractive industries or markets.
A SBU can either be an entire mid sized company or a division of a large sized
corporation, that formulates its own business level strategy & has separate
objectives from the parent company.
The aim of the portfolio analysis is:

1. Analyzes a current business portfolio & decides which SBU’s should
receive more or less investment and
2. Develops growth strategies for adding new products & business to the
portfolio
3. Decides which business or products should no longer be retained.
The BCG Matrix is the best known portfolio planning frame work.
The GE Matrix is a later & more advanced form of the BCG Matrix.
The GE model is more sophisticated than the BCG matrix in 3 aspects.
1. Market (Industry) attractiveness replaces Market growth as the

dimension of the industry attractiveness. Market attractiveness includes
a broader range of factors other than just the market growth rate that
can determine the attractiveness of the industry/ market.
2. Competitive strength replaces Market share as the dimension by which

the competitive position of each SBU assessed. Competitive strength
likewise includes a broader range of factors other than just the market
share that can determine the competitive strategy of a SBU.
3. Finally GE Matrix works with 3*3 grid, while BCG Matrix has only 2*2.
This also allows more sophistication.
A Six step approach to implementation of portfolio analysis
(using GE could look like this)
1.Specific drivers of each dimension. The corporation must
carefully determine those factors that are important to its
overall strategy.
2. Weight drivers. The corporation must assign the relative

importance, weights of the drivers.
3. Score SBU’s each driver.
4. Multiply weights times scores for each SBU
5. View resulting graph and interpret it.
6. Perform a review sensitive analysis using adjusted other

weights and scores.
Internal Factors
Relative market share
Profit margins
Ability to compete on price and quality
Knowledge of customer and market
Competitive strengths and weaknesses
Technological capability
Caliber of management
External Factors
Market size (Value, Units)
Growth rate (%)
Industry profit margins
Competitive intensity
Seasonality
Cyclicality
Economies of scale
Technology
Social, environmental, legal, and human impacts
Some important limitations of GE Matrix
 Valuation of the realization of various factors
 Aggregation of the indicators is different
 Core competencies are not represented
 Interactions between the SBUs are not concerned.
The General Electric Model –
Plots the Market Attractiveness (Y-axis, 1 – 5) against the
Business Strength (X-axis, 5 –1). For each business the two
dimensions are calculated after setting the values for the
parameters under each of the two, and then using their
weightage. The area of the circle is the size of the market,
shaded part being the business’s share.
The 9 cells are divided into 3 zones –
3 cells on top left – strong SBUs in which the company
should invest and grow
3 diagonal cells – medium in overall effectiveness
3 cells in bottom left – weak SBUs. Divest or harvest these.
Planning new Businesses, Downsizing old ones –
The company can try one the following 3 strategies to increase
it’s business –
1.Intensive growth – a review of whether any opportunities
exist for improving the existing business performance.
This can be achieved in 4 ways (Ansoff’s Model) –
1.Market Penetration
2.Market Development
3.Product Development
4.Diversification
2.Integrative growth – By Backward Integration,
Forward Integration, or
Horizontal integration.
3.Diversification growth –
Exploiting opportunities in new businesses.
Business Integration
“Vertical integration is a strategy used by a
company to gain control over its suppliers
or distributors in order to increase the firm’s
power in the marketplace, reduce
transaction costs and secure supplies or
distribution channels.”
“Forward integration is a strategy where a

firm gains ownership or increased control
over its previous customers (distributors or
retailers).”
“Backward integration is a strategy where a

firm gains ownership or increased control
over its previous suppliers.” if a bakery
business bought a wheat processor and a
wheat farm.
Ansoff’s Matrix
Business Strategic planning
The unit strategic planning for a business consists of the
following steps-
1.Business Mission –
Each business unit needs to come up with a mission
within the broader company mission.
2.SWOT analysis
This is further carried out into parts Opportunity and
threat analysis (External Environment analysis)
In general companies need to identify
The major macroeconomic forces (demographic, economic,
technological, socio-cultural, etc.) and
The major microeconomic forces (customers, competitors, suppliers,
distributors, etc) that have an effect on its profitability.
Further, they need to trace trends in these factors then identify which can
be their opportunities and weaknesses.
A marketing opportunity is an area of buyer need in which a company
can perform profitably.
A threat is a challenge posed by an unfavorable trend which, in absence of
marketing action would lead to fall in profitability. A company needs to
chalk out a strategy for dealing with these threats.
After the opportunity and threat analysis is done, a business’s overall
attractiveness can be identified.
Strengths and Weaknesses analysis(Internal Environment Analysis)
A company’s internal strengths and weaknesses in various departments
need to be identified periodically
3.Goal Formulation
Goals are developed to facilitate the management in
planning, implementation and control of achieving the
targets.
Most businesses pursue a variety of objectives, which
should ideally meet the following criteria
The objectives must be placed hierarchically,
in decreasing order of priorities
They should be stated quantitatively
The goals should be realistic
The goals should be consistent with each other
4.Strategic formulation
Strategy is the roadmap for achieving the envisaged goals. Porter defined
strategy as “creation of a unique and valuable position involving different
set of activities”
Strategy can be formulated into 3 generic types –
1.Overall cost leadership – here a business aims at delivering it’s products

at the lowest prices in the market and win a large market share. Such
businesses require to be good at engineering, purchasing, manufacturing
and distribution. A disadvantage of this strategy is that some other
company will eventually emerge with still lower costs.
2.Differentiation – here a business aims at achieving superior performance

in an important customer area valued by a large chunk of the market. It
could strive to be the service leader, the quality leader, the style leader or
technology leader.
3.Focus – Here a firm concentrates on one or more narrow market

segments. It first identifies such a segment and then pursues either cost
leadership or differentiation in them.
Strategic Alliances
Companies are discovering that to achieve leadership they need to
form strategic alliances with domestic or multinational companies
that complement or leverage their capabilities and resources.
The strategic alliances could be in the form of marketing alliances
in the following ways –
1.Product or service alliance – one company licenses the other to
produce its product, or two companies jointly market their
complementary product or a new product.
2.Promotional alliance – one company agrees to carry the promotion
for another company’s product or service
3.Logistics alliance – one company offers logistic services to another
company’s product.
4.Pricing collaboration – one more companies join in a special pricing
collaboration.
5. Program formulation
After developing the principal strategies, companies must work out detailed
supporting programs for them. After formulating the marketing programs, the
costs and benefit scenario is calculated. Activity Based Costing should be
applied to each program to determine whether the benefits form it outdo the
costs.
1.Implementation
For the implementation of strategy, McKinsey has come up with a 7-S
framework. The implementation part of this framework consists of
Style : employees should share a common way of thinking and behaving
Skills : these should be in consonance with the strategy
Staff : includes hiring able people, training them and then assigning
them to the right jobs
Shared values : employees should share the same guiding values
7.Feedback and Control
A firm needs to constantly track and monitor new
developments in the internal and external environment.
For when the marketplace changes, the company will
have to rethink the implementations, programs,
strategies, or even objectives.
A company’s strategic fit with the environment will

definitely erode, because the market environment
changes faster than the 7-S s.
Drucker says it is important to

“do the right thing” than “doing things right”.
The Marketing Process
The value delivery sequence –
The traditional physical process sequence assumes the
company knows what to make and that the market will buy
enough units to produce profits for the company. But such a
sequence could only exist where the supplier calls the shots.
In the value delivery sequence there are 3 parts
1.“Choose the value” – the marketing staff does segmentation,
targeting and positioning (STP)of the market.
2.“Provide the value” – after the STP process has chose the
value, the product’s specifications and services should be
detailed, the price decided and then the product should be
manufactured and distributed.
3.“Communicate the value” – the customers are communicated
about the value of the product through the sales force,
promotion and advertisement.
The marketing process consists of analyzing markets, researching and
selecting markets, designing marketing strategies, planning marketing
programs and organizing, implementing and controlling the marketing
effort.
Analyzing market opportunities – A company should identify long term

opportunities given its core competences and market experience. This
needs reliable market research and information systems. Both the
Microenvironment, consisting of demographic, socio-cultural, economic,
technological, etc forces; and the Microenvironment, consisting of
suppliers, marketing intermediaries, customers and competitors should be
considered.
A way to do it is to divide the market into many segments and evaluate the
segments to find which segment serves the company best.
Developing marketing strategies – After deciding upon the product the

company shall have to decide upon the product positioning, then initiate
the product development, testing and launching. Also the strategy for the
different life stages of the product: introduction, growth, maturity and
decline have to be decided
Planning marketing programs – It consists of deciding
upon the following
1.Marketing expenditure – allotting the budget to

meeting the marketing objectives, and amongst the
products, channels, promotion media and sales areas, and
in the marketing mix.
1.Marketing mix- 4Ps

Product –
Price – the company has to decide upon the wholesale,
retail pricing, discounts to be offered, allowances, etc.
Place – identify, recruit marketing facilitators to supply
the products and service to the target market.
Promotion –
Managing the marketing effort –
This final step includes organizing the marketing resources
and then implementing and controlling the marketing plan.
Three types of controls may be deployed –
1. Annual plan control – ensures whether the company is

meeting the projections of current sales and profits.
1. Profitability control – manages the task of measuring

the actual profitability of products, customer groups,
trade channels and order sizes; and that of different
marketing activities.
1. Strategic control – evaluates whether the company’s

strategy is appropriate to the market conditions
Contents of a marketing plan
Executive summary and table of contents – presents a
brief overview of the proposal
Current marketing situation – presents relevant data
on sales, costs, profits, market, competitors, distribution,
and microenvironment.
Opportunity and issue analysis - SWOT
Objectives – defines the plan’s financial and marketing
goals in terms of sales volume, market share and profit
Marketing strategy – presents broad approach to be
used to meet the objectives
Action programs – presents the marketing programs to
be used to meet business objectives.
Projected profit and loss statement (P&L) – forecasts
the plans expected financial outcomes
Control – indicates how the plan will be monitored
FCB Grid
The FCB grid was developed by Richard Vaughn. a Senior Vice

President of Foote, Cone and Belding Advertising. It helps
direct both our creative strategy and our media strategy as it
clarifies how consumers approach the buying process for
different products. Notice that the process is driven by the
TYPE OF PRODUCT
The model involves high and low risk involvement which is
depicted with the different products on offer. High
involvement products would be a service such as life
insurance where as a low involvement product may be toilet
roll.
Products in Quadrant One of the FCB Grid are products that
are of high importance to the buyer (generally more
expensive) and are decided on rationally. Generally, the buyer
will research competing products and will want lots of
information before making a buying decision
Products in Quadrant Two of the FCB Grid are high

involvement (expensive and an important decision) but are
more emotional in the decision making process. You buy
designer clothes because they will make you feel good about
the way you look, feel sexy or to show your status--all
emotional responses. Other examples would be engagement
rings, fine perfumes or it could be a car (normally in Quadrant
One) if it was a sporty red convertible that you bought to make
you feel young or sexy. If your product is in Quadrant Two, you
need to generate emotional responses and create an image
that people are willing to buy.
Quadrant Three of the FCB Grid is for products that are lower
involvement (not really a lot to lose if you don't like the product) and
rational decisions. Here we find many package goods, such as
detergents, paper products and other everyday items. Since these are
rational decisions, we generally need to give the consumer a reason to
buy (differentiate the product from others and find market niches)
and we need to generate brand loyalty and repeat buying. Reminder
ads and coupons or other sales promotion can help here. Even though
this is a rational decision, the lower importance means that
consumers probably won't wade through long copy.
Quadrant Four of the FCB Grid is for products that are low
involvement, emotional decisions. These are items that aren't really
very expensive and make you feel good or provide self-satisfaction.
Here, we would find entertainment, snack foods, fast foods, soft
drinks, candy and cigarettes and alcohol (although very expensive
alcohol might move up to Quadrant Two). Many times, these are
impulse or convenience buys. Products in this catagory don't really
have a lot of rational reasons for you to buy, and rely heavily on "feel
good" ads. Many times, lifestyles are portrayed to attach an image to
the product (such as, if you are young, drink Pepsi.)
Thank You

SBU Strategies, Portfolio Analysis BCG & GE

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Winning Markets:

Market Oriented Strategic Planning

Principles of Marketing- Philip Kotler

 In this chapter we examine the following questions

 How is strategic planning carried out at the corporate &

 What are the major steps in the marketing process?

 How is planning carried out at the product level?

 What does a marketing plan include?

1. Managing a companies’ portfolios

2. Assessing each business’ strength (skill, resource,

3. Formulating a game plan for each of its businesses

1.Corporate Strategic Plan – It decides what resources to

2.Division Plan – It decides how much funds to allocate

3. Strategic Business Units (SBU)Plan –

This basically subsumes 4 activities –

1.Defining corporate mission

3.Assigning resources to each SBU

4.Planning new businesses, downsizing older ones

A good mission statement has 3 characteristics –

1.They focus on a limited number of goals

2.They stress on major policies and values the company wants to

3.They define the major competitive scope within which the

Type Privately held company

A business can de defined in terms of 3 dimensions

Characteristics of an SBU are –

BOSTON CONSULTING GROUP MATRIX (BCG)

Boston Consulting Group Matrix is developed by Bruce

According to this technique, businesses or products are

To understand the Boston Matrix you need to understand

•Market share is the percentage of the total market that

 Market growth is used as a measure of a market’s

It is a portfolio planning model which is based

It is based on the combination of market

Stars are leaders in business.

They also require heavy investment, to maintain its

It leads to large amount of cash consumption and

Attempts should be made to hold the market

They are foundation of the company and often

They generate more cash than required.

They extract the profits by investing as little cash

They are located in an industry that is mature,

Dogs are the cash traps.

Dogs do not have potential to bring in much cash.

Number of dogs in the company should be minimized.

Business is situated at a declining stage.

Most businesses start of as question marks.

They will absorb great amounts of cash if the market

Why question marks?

Question marks have potential to become star and

Investments should be high for question marks.

The cash demands of products

The development cycles of products

Resource allocation and divestment decisions

Identifying and dividing a company into SBU.

Assessing and comparing the prospects of each

Classifying the SBU’S on the basis of BCG matrix.

Developing strategic objectives for each SBU.

BCG MATRIX is simple and easy to understand.

It helps you to quickly and simply screen the

It is used to identify how corporate cash resources

BCG MATRIX uses only two dimensions

Problems of getting data on market share and market

Business with low market share can be profitable too.