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Business Policy & Strategy

Chapter 7: Growth Strategies

Growth Strategies -- How to Increase Market Share QDIs proven growth strategies generally concentrate on two broad marketing initiatives: increasing demand and extracting full value for a product. While some clients may grapple with driving growth in a new market, others are looking for new avenues to increase market share in a stalled, mature market. Can you increase the value of your product by offering new benefits or superior service? A move to needs-based growth strategies requires a move from a selling culture to collaborative learning. At QDI, we believe you have to work with your customers to identify their unmet needs and then create innovative solutions to those needs then youre on your way to increasing the value of your product and ultimately increasing market share. QDIs market-driven growth strategies are the product of in-depth market research and strategy planning with your marketing and sales team. The right marketing growth strategy for your company is a function of your business objectives and resources and where you are in your market life cycle.

. QDI works with clients at three distinctly different market life cycle stages: Breaking-in New ventures looking to bring new technologies to market Ramping-up Companies in growth markets who are rapidly ramping up their go-tomarket organization Breaking out Companies in mature markets looking to accelerate growth. Breaking-in companies often need help to: Identify the specific customers who will value their new offering enough to purchase it in the near term Define their value propositions in terms that are meaningful and compelling to customers Develop the go-to-market organization necessary to support the early adopters Ramping-up companies often need help growing their sales and marketing organizations and channel positions fast enough to keep up with market growth. QDI helps these clients: Identify the right channels of distribution

Develop programs to help the channel be successful with the clients offering Develop policies, price structures and procedures to minimize conflict while maximizing coverage

Breaking-out companies are trying to grow share in a stalled, mature market. They have the following options: Increase demand for their products and services Become the share leader as the market matures by accelerating maturation in their market Reinvent their future by redefining their products and services to provide new growth opportunities

Increasing Demand You increase demand by increasing: Consumption per existing user Share of existing consumption Market penetration to accelerate the rate of adoption Market/product applications Accelerating Maturation You accelerate market maturity by: Becoming the low-cost marketer Gaining greater control over your go-to-market system

Reinventing Your Future You reinvent your future by developing new value to offer to the market Your customers or new customers Value that relates directly to your core business or value that takes you into new businesses In todays turbulent business environment the focus never moves from the bottom line. Marketers are under increased pressure to constantly drive growth. Whether that means entering new markets or jump starting a stalled, mature market, QDIs consultants help position businesses to increase market share and grow revenue.

BCG Matrix
Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic representation for an organization to examine different businesses in its portfolio on the basis of their related market share and industry growth rates. It is a two dimensional analysis on management of SBUs (Strategic Business Units). In other words, it is a comparative analysis of business potential and the evaluation of environment. According to this matrix, business could be classified as high or low according to their industry growth rate and relative market share. Relative Market Share = SBU Sales this year leading competitors sales this year. Market Growth Rate = Industry sales this year - Industry Sales last year. The analysis requires that both measures be calculated for each SBU. The dimension of business strength, relative market share, will measure comparative advantage indicated by market dominance. The key theory underlying this is existence of an experience curve and that market share is achieved due to overall cost leadership. BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0. if all the SBUs are in same industry, the average growth rate of the industry is used. While, if all the SBUs are located in different industries, then the mid-point is set at the growth rate for the economy. Resources are allocated to the business units according to their situation on the grid. The four cells of this matrix have been called as stars, cash cows, question marks and dogs. Each of these cells represents a particular type of business.

Figure: BCG Matrix

1. Stars- Stars represent business units having large market share in a fast growing industry. They may generate cash but because of fast growing market, stars require huge investments to maintain their lead. Net cash flow is usually modest. SBUs located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry. If successful, a star will become a cash cow when the industry matures.

2. Cash Cows- Cash Cows represents business units having a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be utilized for investment in other business units. These SBUs are the corporations key source of cash, and are specifically the core business. They are the base of an organization. These businesses usually follow stability strategies. When cash cows loose their appeal and move towards deterioration, then a retrenchment policy may be pursued. 3. Question Marks- Question marks represent business units having low relative market share and located in a high growth industry. They require huge amount of cash to maintain or gain market share. They require attention to determine if the venture can be viable. Question marks are generally new goods and services which have a good commercial prospective. There is no specific strategy which can be adopted. If the firm thinks it has dominant market share, then it can adopt expansion strategy, else retrenchment strategy can be adopted. Most businesses start as question marks as the company tries to enter a high growth market in which there is already a market-share. If ignored, then question marks may become dogs, while if huge investment is made, then they have potential of becoming stars. 4. Dogs- Dogs represent businesses having weak market shares in low-growth markets. They neither generate cash nor require huge amount of cash. Due to low market share, these business units face cost disadvantages. Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitors/rival firms. These business firms have weak market share because of high costs, poor quality, ineffective marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain market share. Number of dogs should be avoided and minimized in an organization. Limitations of BCG Matrix The BCG Matrix produces a framework for allocating resources among different business units and makes it possible to compare many business units at a glance. But BCG Matrix is not free from limitations, such as1. BCG matrix classifies businesses as low and high, but generally businesses can be medium also. Thus, the true nature of business may not be reflected. 2. Market is not clearly defined in this model. 3. High market share does not always leads to high profits. There are high costs also involved with high market share. 4. Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability. 5. At times, dogs may help other businesses in gaining competitive advantage. They can earn even more than cash cows sometimes. 6. This four-celled approach is considered as to be too simplistic. It may be indicated that BCG matrix is essentially an extension / application of SWOT analysis to product and markets. High market share and low market share are indicative of the strengths and weakness of the company and high market growth and low market growth are indicative of the opportunities and threats. BCG matrix suggests that if a company/business unit is in "star" position, the strategy should be to hold on to this position. This is referred to as "hold" strategy. If company is in a "cash cow" position, it should milk the cash cow. This is referred to as "harvest" strategy. If company is in "question mark" position, it should try to increase the market share. This is referred to as "build strategy". If the company is in "dog" situation, it should think of getting out of such a business. This is referred to as "divest strategy".

GE Matrix GE Matrix or McKinsey Matrix is a strategic tool for portfolio analysis. It is similar to the BCG Matrix and actually the GE / McKinsey Matrix is an extension of the BCG Matrix - multifactor portfolio analysis tool. This tool compares different businesses on "Business Strength" and "Market Attractiveness" variables, plus the size of the bubbles represents the market size instead of business sales used in the BCG Matrix, and the share of the market or business sales vs. market size is represented as pie chart inside the bubbles. This allows the business user to compare business strength, market attractiveness, market size, and market share for different strategic business units (SBUs) or different product offerings. This strategic portfolio analysis tool has been initially developed by GE and McKinsey. GE Matrix Positions and Strategy The GE / McKinsey Matrix is divided into nine cells - nine alternatives for positioning of any SBU or product offering. Based on the strength of the business and its market attractiveness each SBU will have a different position in the matrix. Further, the market size and the current sales will distinguish each SBU. Based on clear understanding of all of these factors decision makers are able to develop effective strategies. The nine cells in the matrix can be grouped into three major segments: Segment 1: This is the best segment. The business is strong and the market is attractive. The company should allocate resources in this business and focus on growing the business and increase market share.

Segment 2: The business is either strong but the market is not attractive or the market is strong and the business is not strong enough to pursue potential opportunities. Decision makers should make judgment on how to further deal with these SBUs. Some of them may consume to much resources and are not promising while others may need additional resources and better strategy for growth. Segment 3: This is the worst segment. Businesses in this segment are weak and their market is not attractive. Decision makers should consider either repositioning these SBUs into a different market segment, develop better cost-effective offering, or get rid of these SBUs and invest the resources into more promising and attractive SBUs. When we compare the GE model with BCG model, we can observe that market share is indicative of the competitive position or business strength and market growth rate is indicative of the attractiveness of the industry. In fact, we can reduce 3 x 3 matrix of GE model into a 2 x 2 matrix and refer It as modified GE model. The model is presented in Figure 2.4.