BCG matrix as a tool for managing the company's product range
The success of managing the product range of a manufacturing company largely depends on such a factor as the balance of a combination of new, developing and already mature products in the company's portfolio. One of the most well-known and widely practiced methods of portfolio analysis, through which it is possible to classify various combinations of goods and services of a firm, is the BCG Matrix (BCG, growth - market share "). This matrix was developed in the early 1970s. Boston Consulting Group and its founder BD Hendersen. The purpose of creating and functioning of the matrix BCG is the evaluation of the company's goods, depending on their market share and the growth rate of the market for this product.
Four groups of products are identified in the BCG matrix:
1. Question marks ( Difficult children ). These are new products that have a high sales growth rate, a low profit rate in the short term, and high costs of their support and development. In relation to these products, investment or selective development strategies are applied.
2. "Stars". These products are the leaders of a growing market with high sales growth and high profit margins, but high marketing costs. In relation to these products, the strategy of retaining leadership is applied.
3. Milk cow. " These products are leaders in a stagnant market with a high level of profit, with little investment in development and promotion, but without further growth prospects. For these products, a strategy is used to maximize profits, which is directed to the development of new goods and services and the maintenance of star goods.
4. Dogs ( Lame Ducks ). These are new products that have failed or fallen market products that are characterized by a low profit or loss rate and virtually no sales growth opportunities. In relation to these goods, strategies for leaving the market or reducing activity are applied. An alternative may be to update or reposition the product.
It's important to remember!
From the point of view of the BCG matrix, the company's harmonious portfolio should include two groups of products:
1) goods that provide a company the opportunity to develop its business activities at the expense of free cash - "stars" and dairy cows & quot ;;
2) goods that are at the implementation stage and require investment - "difficult children". Revenues from the sale of goods of the first group make it possible to provide the current position of the company and develop the goods of the second group, thereby forming the future of the company.
However, the BCG matrix has certain limitations when applied:
1) Analyzed topars should remain stably at their lifecycle stages, i.e. strategic prospects should be commensurate with the dynamics of market growth;
2) it is necessary to know the share of the goods of the strongest competitor in the market;
3) In some cases, the goods dogs can be more profitable than goods milk cows & quot ;. This indicates the relativity of the results of the BCG matrix;
4) The results of this matrix should be supported by the results of other matrices (for example, Ansoff, GE , etc.);
5) only one growth rate does not indicate the attractiveness of the market, as the evaluation of attractiveness depends on a variety of factors - input barriers, macro- and microfactors;
6) the rate of growth does not indicate the profitability of the industry, since low entry barriers and high growth rates create prerequisites for intense and price competition, which will not be a favorable environment for the company;
7) The relative market share is the result of past data, which does not guarantee obtaining a similar situation in the future.
To determine the position of the goods use two variables: the relative share of the product in the market and the rate of its growth. Consider the calculation of these variables:
1. The relative share of the product on the market is calculated as the ratio of the company's product share () to the product share of the strongest competitor (d K ):
Market quota is placed on the horizontal coordinate axis in the reverse order, i.e. from right to left from 0,1 to 10.
2. The pace (dynamics) of the market is calculated as the ratio of the difference in the current market volume () and the previous period () The volume of the market of the previous period multiplied by the period ( t ):
Either the market growth rate is calculated as the weighted average value ():
where - the rate of growth of the goods; - the capacity of the commodity market; - total market capacity.
In this case, depending on the values of the growth rate determine the state of the market:
1) Тp & gt; 1.4 - on the market there is an accelerated growth;
2) 1 & lt; Tp & lt; 1.4 - Positional growth is observed on the market;
3) Тр = 1 - the market is experiencing stagnation;
4) 0.7 < Tp & lt; 1 - the market is collapsing;
5) Tp & lt; 1 - there is a commodity crisis on the market.
Goods on the plane are displayed in the form of circles, with the diameter of the circle depending on the sales volume of the goods (Figure 5.7).
Fig. 5.7. The BCG Matrix
The average boundary on the graph along the vertical axis (growth rate) is usually taken at the point of 100% + 10%, or 1 + 0.1, i.e. 1.1. On the horizontal axis, the average border is either at level 1, but then there is one leader and many goods that occupy secondary positions. Either at the border of 0.75-0.8, and in this case in the squares of the stars and milk cows there are strong products besides leaders.
It is worth noting that the matrix of the BCG was refined by J. J. Lamben (Figure 5.8).
Fig. 5.8. The BCG matrix, revised by J. J. Lamben
F. J. Lamben made the following additions:
1. R & D. By investing money from the sale of "dairy cows" in R & D, the company provides a new product that is included in the category "stars."
2. "Follower". Using an aggressive strategy of increasing market share and channeling funds from the sale of "milk cows" to the development of "difficult children", these goods go to category stars .
3. Failure . With irrational investment of the star can lose their strong positions in the market and go back to the category of "difficult children".
4. & Mediation: If it is not possible to increase the market share, the item "difficult child" goes to the category "dogs".
The advantages of using the BCG matrix are:
1) the ability to evaluate the relationship between goods and analyze the stages of their development;
2) visibility, simplicity and accessibility
3) the objectivity of the parameters used;
4) connecting the product life cycle and forming the company's product portfolio;
5) ease of choosing and developing a strategy for products of each category.
The disadvantages of using the BCG matrix are:
1) the model takes into account only two variable factors, while there are other factors of success and attractiveness in the market;
2) there is an assumption that the share of the market share that can not be in the market, for example, when a new product is brought to the market with high costs,
3) not always a decrease in the market share is due to the end of the product's life cycle, for example, due to the impact of the economic crisis;
4) there is no tactical development for implementing the indicated strategies;
5) the market may not have data on the share or sales of the strongest competitor in the market.
To mitigate the last drawback, use the modified BCG matrix based on the company's own data. So, for example, on the vertical axis indicate the rate of profit growth, and on the horizontal axis - the share of the profit of each activity and the average border is either using the Pareto law (20% of goods provide 80% of profit) or half the maximum value. When using the Pareto law, the shares of the profit of goods, which are ranked in descending order, are summed up and the average boundary is carried out on the value of the share of the commodity, on which the sum of shares exceeds 80%.
Let us consider an example of the construction of the BCG matrix. The company produces and sells four types of goods (Table 5.2).
Example of the construction of the BCG matrix
Sales, thousand rubles.
Sales of the strongest competitor, thousand rubles.
Market growth rate, %
Accordingly, the matrix will look like this (Figure 5.9).
Fig. 5.9. The BCG matrix constructed according to conditional data
Elements of Trust in a Trademark
Currently, not only manufacturers of products for consumer markets, but also producers for the market В2В are interested in the creation and development of strong brands, which in the future promise to turn into strong brands. And as you know, strong brands have a number of undeniable advantages, among which you can especially highlight loyal customers. The process of building a strong brand both in the B2C, market and in the B2B market begins with consumer confidence in the brand that includes five main significant elements for the consumer (Figure 5.10).
Fig. 5.10. The main elements of trust to the brand
Let's look at each element in more detail.
1. Honesty as an element of brand confidence implies that the company, as a producer and supplier of goods and services, will conduct fair operations with its customers, strictly observing all conditions of the previously concluded contract, without attempts to mislead them.
2. Sequence is the client's confidence that the supplier has all the necessary resources to produce a product of the proper quality and to remain a stable and reliable company for a long time on the market . The latter circumstance is extremely important for consumers of a unique product with a long service life, for example manufacturing equipment, which may require the supply of spare parts or need maintenance after it is sold.
3. Caring , as an element of brand trust, means the producer company is interested in the high quality of the products and services delivered, helping clients in determining characteristics of the ordered products.
4. Resonance of values is expressed in the community of views of the manufacturing company and the customer on the main social issues, environment, social responsibility of business, etc.
5. The manufacturer's competency is one of the most important elements of trust in the brand. Due to the specifics of B2B , the client must be sure that the company has the technical and financial capabilities to properly produce the product or effectively provide services. Here an important role is played not only by the technical equipment of the manufacturer's manufacturing facilities, but also by the level of qualification, the competence of its specialists, and the quality of the resources used.
For example, among the manufacturing companies can be identified transnational company IBM, is one of the world's largest manufacturers and suppliers of hardware and software, as well as IT -Services and consulting services. It has the main elements considered and it is possible to say with certainty that the company managed to create a strong brand that causes consumers a high level of trust worldwide.
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