Understanding of the concept
The growth-share matrix or the BCG matrix is a professional strategic mechanism, which is considered to assume a company’s brand profile or in the understanding of SBU on a relative market quadrant on the ground basis of its growth in the market. The BCG or growth-share matrix is something that acts as a smart business or professional mechanism which can help in the industrial or corporate factors so to assume the potential of a business profile and recommend the most viable alternative for future investment tactics.
Understanding the framework of the tool
First off let’s understand what is the BCG matrix, as already mentioned above it is a smart mechanism that is produced by the famous business group known as Boston Consulting group so to enumerate the tatkal position of the company or a brand at any given instant. The group and the framework effectively differentiate the brands into different categories and on the basis of the growth rate of industry (industry attractiveness ) and the relative market share (competitive position).
So the above-mentioned parameters help in identifying the probable profitability of a brand or a company in parameters such as what kind of cash support is needed to take ahead the business operations and what kind of investment will be required for such purpose. The usual reason for such kind of investigation is done so to cater to the needs of what brands should invest in more, and what more does it need to stand out among all the other major brands competing in the same field. It can only be understood with some good BCG matrix examples.
1. Relative market share
This is one of the most important parameters which is used to calculate the relative share of the market with respect to the brand or the product a brand offers. Prestigious brands and companies that have a remarkable market presence and value usually have a much greater share in cash returns. This is due to that particular brand, company or firm has a massive production and eventually a higher amount of returns on investments made which ensure greater economies of experience and scale curve, offering greater and assured profits. Although the worth may not be one and the same to all the organizations as they may get the same benefits while making a comparatively lower investment and lower production overhead costs and a substantially lower share of the market.
2. Market growth rate
A market growth rate that is soaring high like anything means higher security of profits and earnings and at some point, profits do come with a cost that may use maximum cash stacks and is considered as an investment to nurture the further growth of the company and its business operations. Hence any business that usually operates in quick booming sectors are the ones that usually dwell or rely too much on it as it may be worth a shot as in the circumstances of the chosen sector may be having a sustaining or growing share in the market in the foreseeable future.
The companies can be further classified into 4 categories such as
1. Dogs
2. Cash Cows
3. Stars
4. Question Marks
1. Dogs
The companies that fall in the category of dogs are usually the ones that have a comparatively lower share of market in contrast with the contenders in the market. These companies are usually the ones that operate way too slowly in a booming market. In simpler terms, these companies are of those types in which investing is not recommended as they usually come up with negative or low cash returns. However this may not always remain the same case scenario.
A few companies that fall in the dog category may also be highly profitable investment choices to make as them being a profitable alternative in the market after surviving a long and tiring market existence. These can be the ones that are offering a great aifd to all kinds of other companies present in the market. In simpler terms a support to all kinds of major and minor SBUs and acting as a last line of defense against the contender actions to the company.
Hence it is always suggested that before investing in any company that falls under the category of a “Dog Matrix” it is necessary to thoroughly check it with every possible elements and analyse the company moves and business operations up close. As it is highly possible that a company may not be the one you should be investing with your hard earned capital which you have gathered after years of saving and hard work. A great BCG matrix example is Bisleri if you are looking for bcg matrix examples.
Tactical alternatives
1. Liquidation
2. Divestiture
3. Retrenchment.
2. Cash cows
The companies that usually come under the umbrella of cash cows are the first preference for making an investment option. Also termed as one of the most reputable and highly profit yielding companies which can and should be milked so to get the maximum profits in cash as far as possible. The cash amount that is obtained from any cash cow company should be utilized to make an investment in those specific companies that do fall in the category of Star companies.
This is much recommend option for all those who want to have ensured profits, for them they can have all the cash flow invested in the Star category companies so to not just ensure maxim profit but ensure the future growth of those companies which fall in the Star category. In accordance with the share matrix of growth, companies usually does not make a big time investment into companies of cash cow categories so to stimulate growth but to allow the companies to have their market existence sustained as being present in the market for such a long time.
In simpler words the other companies which usually get their profit suggest that investing by using income from a cash cow company is usually done by the corporates not in lieu of profitability but to let the companies sustain their market existence as being present in the same markt for decade and to retain their market share as well.
The cash cows generally are those massive organizations which have the capability to coming up with new range of products and services which have the potential of becoming a star company product. The other important thing to take into account is that if the cash flow for such cash companies is not that high. They won’t be able to innovate and make new products at all.
Tactical alternatives
1. diversification
2. Product development
3. Retrenchment
4. divestiture
3. Stars
The companies that fall in the star category are the ones that have ensued market growth and sustain it through their higher share in the market. These companies which are belonging to the star category are the ones that have cash use and cash generation capacity too. As they primarily are the companies in which an investor is looking to invest his money, should definitely go ahead and invest all of his money. This is due to the reason the company is anytime a cash cow and a flourishing cash flow. But the catch is not all of the stars eventually turn up to become or transform into a cash cow company.
This is rather a hard cold fact that is difficult to digest especially where the industries are changing quickly. As the new products are outrun by the new competitor’s products at any time and also the price variation may be a major reason behind all of this. This is all due to the latest development in the technology sector so when a company is expected to become a cash cow company, it actually gets converted into a dog. Thus helping with the question of what is BCG matrix.
Tactical alternatives
1. product development
2. horizontal integration
3. market penetration
3. Vertical integration
5. market development
4. Question marks
These are those corporations that need a close analysis to understand what it entails for an investor or a shareowner. As the fact is they run on an all time low share in the market where the market is growing fast and consumers using a lot of cash inflow and bearing nothing but lose. It does have the capacity to bag a tremendous amount of market share and eventually turn up to become a star or even a cash cow company. The other surprising thing is that despite the large amounts invested in the companies don’t tend to succeed as they have a hard time grabbing the desired market share and ultimately end up as dogs.
Hence it is very much necessary for anyone looking forward to making an investment in such a company to check everything and do careful research and analysis to check whether they are a worthy option of investing all the money or not to invest even a small dime. Some of the relative examples of the BCG matrix are as follows.
Tactical alternatives
1. market development
2. divestiture
3. Market penetration
4. product development
Merits and demerits
1. It is rather very easy to execute
2. Is useful to analyze the tactical business profile of a company
3. A good headstart for in depth analysis
4. Excludes other factors which may bring about any sudden changes in the market situation
5. Denis of having a close comparative look among two similar business entities
All in All
This was the complete article on what is bcg matrix. If you understood this topic then give us some examples of bcg matrix which you think suits the most to this topic in comments.
I hope this article on what is the bcg matrix was helpful to you and if you have any suggestions or anu question on any examples of bcg matrix then you can mention it in the comments.