BCG Matrix:

The BCG Matrix method is the most well-known portfolio management tool. It is based on product life cycle theory. It was developed in the early 70s by the Boston Consulting Group. The BCG Matrix can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. The Boston Consulting Group Matrix has 2 dimensions: market share and market growth. The basic idea behind it is: if a product has a bigger market share, or if the product's market grows faster, it is better for the company. THE FOUR SEGMENTS OF THE BCG MATRIX

Placing products in the BCG matrix provides 4 categories in a portfolio of a company:

Stars (high growth, high market share)

o Stars are using large amounts of cash. Stars are leaders in the business. Therefore

they should also generate large amounts of cash.

o Stars are frequently roughly in balance on net cash flow. However if needed any

attempt should be made to hold your market share in Stars, because the rewards will be Cash Cows if market share is kept.

Cash Cows (low growth, high market share)

o Profits and cash generation should be high. Because of the low growth,

investments which are needed should be low.

o Cash Cows are often the stars of yesterday and they are the foundation of a

company. Dogs (low growth, low market share)

o Avoid and minimize the number of Dogs in a company. o Watch out for expensive rescue plans. o Dogs must deliver cash, otherwise they must be liquidated.

Question Marks (high growth, low market share)

o Question Marks have the worst cash characteristics of all, because they have high

cash demands and generate low returns, because of their low market share.
o If the market share remains unchanged, Question Marks will simply absorb great

amounts of cash.
o Either invest heavily, or sell off, or invest nothing and generate any cash that you

can. Increase market share or deliver cash. THE BCG MATRIX AND ONE SIZE FITS ALL STRATEGIES The BCG Matrix method can help to understand a frequently made strategy mistake: having a one size fits all strategy approach, such as a generic growth target (9 percent per year) or a generic return on capital of say 9,5% for an entire corporation. In such a scenario:

Cash Cows Business Units will reach their profit target easily. Their management have an

easy job. The executives are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash amounts in their mature businesses.

Dogs Business Units are fighting an impossible battle and, even worse, now and then As a result all Question Marks and Stars receive only mediocre investment funds. In this

investments are made. These are hopeless attempts to "turn the business around". way they can never become Cash Cows. These inadequate invested sums of money are a waste of money. Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become Cash Cows (or Stars), or otherwise companies are advised to disinvest. They can then try to get any possible cash from the Question Marks that were not selected.

OTHER USES AND BENEFITS OF THE BCG MATRIX

If a company is able to use the experience curve to its advantage, it should be able to

manufacture and sell new products at a price that is low enough to get early market share leadership. Once it becomes a star, it is destined to be profitable.

BCG model is helpful for managers to evaluate balance in the firms current portfolio of BCG method is applicable to large companies that seek volume and experience effects. The model is simple and easy to understand. It provides a base for management to decide and prepare for future actions.

Stars, Cash Cows, Question Marks and Dogs.

LIMITATIONS OF THE BCG MATRIX Some limitations of the Boston Consulting Group Matrix include:

It neglects the effects of synergy between business units. High market share is not the only success factor. Market growth is not the only indicator for attractiveness of a market. Sometimes Dogs can earn even more cash as Cash Cows. The problems of getting data on the market share and market growth. There is no clear definition of what constitutes a "market". A high market share does not necessarily lead to profitability all the time. The model uses only two dimensions market share and growth rate. This may tempt A business with a low market share can be profitable too. The model neglects small competitors that have fast growing market shares.

management to emphasize a particular product, or to divest prematurely.

Marketing Mix
The Marketing Mix model (also known as the 4 P's) can be used by marketers as a tool to assist in defining the marketing strategy. Marketing managers use this method to attempt to generate the optimal response in the target market by blending 4 (or 5, or 7) variables in an optimal way. It is important to understand that the Marketing Mix principles are controllable variables. The Marketing Mix can be adjusted on a frequent basis to meet the changing needs of the target group and the other dynamics of the marketing environment.

Historically, the thinking was: a good product will sell itself. However there are no bad products anymore in today's highly competitive markets. Plus there are many laws giving Functionality; Quality; Product customers the right to send back products that he perceives Appearance; Packaging; as bad. Therefore the question on product has become: does Brand; Service; Support; the organization create what its intended customers want? Warranty. Define the characteristics of your product or service that meets the needs of your customers. How much are the intended customers willing to pay? Here we decide on a pricing strategy - do not let it just happen! Even if you decide not to ask (enough) money for a product or service, you must realize that this is a conscious decision Price and forms part of the pricing strategy. Although competing on price is as old as mankind, the consumer is often still sensitive for price discounts and special offers. Price has also an irrational side: something that is expensive must be good. Permanently competing on price is for many companies not a very sensible approach. Available at the right place, at the right time, in the right Place quantities? Some of the recent major changes in business have come about by changing Place. Think of the Internet and mobile telephones. (How) are the chosen target groups informed or educated about the organization and its products? This includes all the weapons in the marketing armory - advertising, selling, sales Promotion promotions, Direct Marketing, Public Relations, etc. While the other three P's have lost much of their meanings in today's markets, Promotion has become the most important P to focus on. Advertising; Public Relations; Message; Direct Sales; Sales; Media; Budget. Locations; Logistics; Channel members; Channel Motivation; Market Coverage; Service Levels; Internet; Mobile. List Price; Discounts; Financing; Leasing Options; Allowances.

The function of the Marketing Mix is to help develop a package (mix) that will not only satisfy the needs of the customers within the target markets, but simultaneously to maximize the performance of the organization. There have been many attempts to increase the number of P's from 4 to 5P's in the Marketing Mix model. The most frequently mentioned one being People or Personnel. Booms and Bitner have suggested a 7-Ps approach for services-oriented companies

3 EXTRA P'S Booms and Bitner's have added the following 3 additional Ps to the original Marketing Mix: 5. People: All people that are directly or indirectly involved in the consumption of a service are an important part of the Extended Marketing Mix. Knowledge workers, employees, management and consumers often add significant value to the total product or service offering. 6. Process: Procedure, mechanisms and flow of activities by which services are consumed (customer management processes) are an essential element of the marketing strategy. 7. Physical Evidence: The ability and environment in which the service is delivered. Both tangible goods that help to communicate and perform the service, and the intangible experience of existing customers and the ability of the business to relay that customer satisfaction to potential customers. The first two more Ps are explicit (People, Process) and the third one (Physical Evidence) is an implicit factor.

The Product Life Cycle model

The term was used for the first time by Theodore Levitt in 1965 in an Harvard Business Review article: "Exploit the Product Life Cycle". Any company is constantly seeking ways to grow future cash flows by maximizing revenue from the sale of products and services. Cash Flow allows a company to maintain its viability, invest in new product development and improve its workforce. All this in an effort to acquire additional market share and become a leader in its respective industry. A constant and sustainable cash flow (revenue) stream from product sales is key to any long-term investment, and the best way to attain a stable revenue stream is to have one or more Cash Cows. Cash Cows are strong products that have achieved a large market share in mature markets. Also, the modern Product Life Cycle is becoming shorter and shorter. Many products in mature industries are revitalized by product differentiation and market segmentation. Organizations increasingly reassess product life cycle costs and revenues, because the time available to sell a product and recover the investment shrinks. Although the product life cycle shrinks, the operating life of many products is lengthening. For example, the operating life of some durable goods, such as automobiles and appliances, has increased substantially. As a result, the companies that produce these products must take their market life and service life into account when they are planning. Increasingly, companies are attempting to optimize revenue and profits over the entire life cycle. They do this through the consideration of product warranties, spare parts, and the ability to upgrade existing products.

It is clear that the Product Life Cycle concept has significant impact upon business strategy and corporate performance. The Product Life Cycle method identifies the distinct stages affecting sales of a product. From the product's inception until its retirement.

The stages in the Product Life Cycle

Introduction stage. The product is introduced in the market through a focused and intense marketing effort designed to establish a clear identity and promote maximum awareness. Many trial or impulse purchases will occur at this stage. Growth stage. Can be recognized by increasing sales and the emergence of competitors. At the vendor's side, the Growth stage is also characterized by sustained marketing activities. Some customers make repeat purchases. Maturity stage. This phase can be recognized when competitors beginning to leave the market. Also, sales velocity is dramatically reduced, and sales volume reaches a steady level. At this point in time, typically loyal customers purchase the product. Decline stage. The lingering effects of competition, unfavorable economic conditions, new trends, etc, often explain the decline in sales.

Positioning
Positioning is a marketing method for creating the perception of a product, brand, or company identity. Starting from 1969, two young marketing guys, Jack Trout and Al Ries, wrote, spoke and disseminated to the advertising and PR world about a new concept in communications which they called positioning. Until then, advertising agencies had primarily been basing their media campaigns on internally conceived benefits of the client's product. According to Trout and Ries, "positioning is not what you do to a product. Positioning is what you do to the mind of the prospect. That is, you position (place) the product in the mind of the potential buyer". Since that time in marketing, positioning is the technique in which marketers try to create an image or identity for a product, brand, or company in the perception of the target market. What matters is how potential buyers see the product. It is expressed relative to the position of competitors. Typical positioning tools include graphical perception mapping, market surveys, and certain statistical techniques.

Competitive Edge and Positioning A successful positioning strategy is usually based on a sustainable competitive advantage of a company. Positioning can be based on several things, including:

Product features Benefits, needs, or solutions Use categories Usage occasions Placing and comparing it relative to another product Dissociation of the product class

Three bases of positioning can be distinguished 1. Functional (solve problems, provide benefits to customers) 2. Symbolic (self-image enhancement, meaningfulness, affective fulfillment) ego identification, belongingness and social

3. Experiential (provide sensory stimulation; provide cognitive stimulation) Three Positioning Strategies by Youngme Moon In an HBR article of May 2005, Youngme Moon introduced three variations of Positioning that can be used to break free from Product Life Cycle thinking. Companies can change how consumers perceive them. By Positioning or often Repositioning their products in unexpected ways. Three positioning strategies that marketers use to cause a mental shift at consumers are Reverse, Breakaway, Stealth Positioning:

1. Reverse Positioning. This method removes "sacred" product attributes. Simultaneously new attributes are added that would typically be found only in a highly augmented product. For example IKEA is not delivering to your home the products which you have bought, and it offers no sales consultancy. But IKEA added: children drop-off, cafe, toys). Recommended for: Services companies. 2. Breakaway Positioning. This method associates the product with a radically different category. By manipulating the cues of consumers of how they perceive and categorize a product, a firm can change how consumers frame a product. (ex. Swatch > no longer in category Swiss Watches, but in Fashion Accessories). Recommended for Packaged Goods companies. 3. Stealth Positioning. This variant gradually interests consumers for a new offering, by hiding the product's true nature. For example Sony's AIBO robot was positioned as a lovable pet. This shifted consumer's attention away from its major limitations as a household aide. It apparently even turned elderly people into early technology adopters. Recommended for: Technology companies.

PEST analysis
The PEST analysis is a framework that strategy consultants use to scan the external macro-environment in which a firm operates. PEST is an acronym for the following factors: Political Economic Social Technological PEST factors play an important role in the value creation opportunities of a strategy. However they are usually outside the control of the corporation and must normally be considered as either threats or opportunities. Remember macro-economical factors can differ per continent, country or even region, so normally a PEST analysis should be performed per country.

Political (incl. Legal)

Economic

Social Income distribution Demographics, Population growth rates, Age distribution

Technological Government research spending Industry focus on technological effort New inventions and development Rate of technology transfer

Environmental regulations Economic growth and protection Tax policies International trade regulations and restrictions Interest rates & monetary policies

Government spending Labor / social mobility

Contract enforcement Unemployment policy Lifestyle changes law. Consumer protection Employment laws Taxation

Work/career and leisure Life cycle and speed of attitudes. technological obsolescence Entrepreneurial spirit Education Fashion, hypes Energy use and costs (Changes in) Information Technology

Government organization Exchange rates / attitude Competition regulation Political Stability Safety regulations Inflation rates

Health consciousness & Stage of the business welfare, feelings on (Changes in) Internet cycle safety Consumer confidence Living conditions (Changes in) Mobile Technology

Completing a PEST Analysis is relatively simple, and can be done via workshops using brainstorming techniques. Usage of PEST analysis can vary from: company and strategic planning, marketing planning, business and product development, and research reports.

Relationship Marketing
Relationship Marketing is an approach which emphasizes the continuing relationships that should exist between the organization and its customers. It emphasizes the importance of customer service and quality and of developing a series of transactions with consumers. The terminology was first described by Theodore Levitt in 1983. Relationship Marketing is strongly linked to Business Process Reengineering. According to this reengineering theory, organizations should be structured according to complete tasks and processes. Rather than functions. Usage of Relationship Marketing. Applications Relationship marketing and traditional transactional marketing are not mutually exclusive and they are not necessarily in conflict with each other. Relationship Marketing may be more suitable in the following circumstances or situations: High value products or services. Industrial products. Products are not generic commodities. Switching costs are high. Customers prefer a continuous relation. There is customer involvement in the production phase. See: Co-Creation. Strengths of Relationship Marketing. Benefits Focus on providing value to customers. Emphasis on customer retention. The method is an integrated approach to marketing, service and quality. Therefore it provides a better basis for achieving Competitive Advantage. Studies in several industries show that the costs to keep an existing customer are just a fraction of the costs to acquire a new customer. So often it makes economic sense to pay more attention to existing customers. Long-term customers may initiate free word of mouth promotions and referrals. Long-term customers are less likely to switch to competitors. This makes it more difficult for competitors to enter the market. Happier customers may lead to happier employees. Limitations of the Relationship Marketing model. Disadvantages Relationship Marketing is less appropriate in the following circumstances: Relatively low value products or services. Consumer products. Generic commodities. Switching costs are low. Clients prefer a single transaction to relationships. No / low customer involvement in production.

Direct Marketing
Direct Marketing involves a "direct response" from a consumer. It is a technique that is used to address commercial messages towards individual consumers. A synonym which is sometimes used is "One-toone Marketing". It differs from regular advertising in that it does not place its messages on mass media such as newspapers or TV. Instead, the marketing message of the service or commodity is addressed directly to the consumer. This sales and promotion technique uses promotional materials such as leaflets, brochures, letters, catalogs, or print ads that are delivered individually to potential customers via so called "addressable media": The mail (Direct Mail). Telephone (Telemarketing). Humans (Door-to-Door Selling, Party Plan Selling). E-mail (E-mail Marketing). Internet (Behavioral Targeting) Mobile phones. Direct marketing is dependent upon the use of customer data and lists, normally in databases. Hence also the terminology: Database Marketing. These databases are searched and "crunched" to select those consumers that have the optimal chances for sales success. A related form of marketing is Direct Response Marketing. Contrary to Direct Marketing, in Direct Response Marketing the customer responds to the marketer directly. Its most common form today is Infomercials via television presentations, to which viewers respond directly via telephone or internet. Coupons in magazines and newspapers are another type of Direct Response Marketing. Strengths of Direct Marketing model. Benefits Cost-effective. Effectiveness can be measured directly by comparing purchasing behavior of targeted vs. nontargeted consumers. Direct contact with the customers. Consumers receive commercial messages which have been adjusted to their profile. Convenience. Limitations of the Direct Marketing approach. Disadvantages Sometimes criticized for generating unwanted solicitations (Junk Mail and Spam). Privacy concerns. Legitimate Direct Marketing firms should offer methods by which individuals can 'opt out' of these lists upon request. Direct Marketing agencies must respect the do-not-call list maintained by government agencies such as the Federal Trade Commission (FTC).

Affiliate Marketing
It is a promotion method that can be used to reward partner companies for introducing new clients. It can be seen as a digital form of franchising or as an electronic joint venture. The Merchant normally delivers advertising banners and web links to their affiliates. Also the Merchant grants a commission. Normally in return for a click-through to their website, subscription to their service, or purchase of their products which is generated via these links. Affiliates place a tracking code for these ads into their web pages. Each time a visitor on the affiliate's website clicks towards the website of the Merchant, that transaction is registered online. Compensation for the Affiliate may be made based on: Pay per click. A certain value for each visit. Pay per lead. A certain value for each registration or for each qualified registration. Pay per sale. A certain value for each customer or sale. Usage of Affiliate Marketing. Applications Online advertising. The approach is most effective when placed in context with quality content. Some third parties such as LinkShare, Commission Junction and also Google offer affiliate networks and provide services such as tracking, reporting, affiliate recruiting, payments, sending out end-of-year tax forms, and responses to webmaster queries. Strengths of Affiliate Marketing. Benefits For the Affiliate: Offer additional products or services to their visitors. The opportunity to earn money from their niche audience by up selling or cross selling. Without the need to invest in logistics, financial fulfillment, or back office administration. For the Merchant: No payment is due to an Affiliate until certain results are achieved. Typically low-cost and cost-effective. Targeted advertising into appropriate niches. To get a measurable means of advertising their products or services. Extend reach of brand. Limitations of Affiliate Marketing. Disadvantages Some affiliate marketers have been accused of spamming to promote their programs. Either in the form of email spamming or by creating multiple websites with the purpose of generating artificial traffic from search engines (spamdexing). Websites made up purely or predominantly of Affiliate links are usually regarded negatively as they do not offer any quality content. Note that most people don't purchase during their first visit to a website. A cookie can ensure that a referral is registered. If the referred person makes a purchase on a future visit, the original referrer will still be credited for the sale.

Ansoff Matrix
The Product/Market Grid of Ansoff is a model that has proven to be very useful in business unit strategy processes to determine business growth opportunities. The Product/Market Grid has two dimensions: products and markets. Over these 2 dimensions, four growth strategies can be formed.

FOUR GROWTH STRATEGIES IN THE PRODUCT/MARKET GRID 1. Market Penetration. Sell more of the same products or services in current markets. These strategies normally try to change incidental clients to regular clients, and regular client into heavy clients. Typical systems are volume discounts, bonus cards and Customer Relationship Management. Strategy is often to achieve economies of scale through more efficient manufacturing, more efficient distribution, more purchasing power, overhead sharing. 2. Market Development. Sell more of the same products or services in new markets. These strategies often try to lure clients away from competitors or introduce existing products in foreign markets or introduce new brand names in a market. New markets can be geographic or functional, such as when we sell the same product for another purpose. Small modifications may be necessary. Beware of cultural differences. 3. Product Development. Sell new products or services in current markets. These strategies often try to sell other products to (regular) clients. These can be accessories, addons, or completely new products. Cross-selling. Often, existing communication channels are used. 4. Diversification. Sell new products or services in new markets. These strategies are the most risky type of strategies. Often there is a credibility focus in the communication to explain

why the company enters new markets with new products. On the other hand diversification strategies also can decrease risk, because a large corporation can spread certain risks if it operates on more than one market. Diversification can be done in four ways:
o

Horizontal diversification. This occurs when the company acquires or develops new products that could appeal to its current customer groups even though those new products may be technologically unrelated to the existing product lines.

Vertical diversification. The company moves into the business of its suppliers or into the business of its customers. Concentric diversification. This results in new product lines or services that have technological and/or marketing synergies with existing product lines, even though the products may appeal to a new customer group.

Conglomerate diversification. This occurs when there is neither technological nor marketing synergy and this requires reaching new customer groups. Sometimes used by large companies seeking ways to balance a cyclical portfolio with a non-cyclical one.

Although the Product/Market Grid of Ansoff is already decennia old, it remains a valuable model for communication around business unit strategy processes and business growth. The Matrix is also known as: the Ansoff Matrix, the Product Market Expansion Grid, and the Growth Vector Matrix. Derek F. Abell has suggested that a Three Dimensional Business Definition is superior to the Model of Ansoff.

Five Forces model of Porter

The Five Forces model of Porter is an Outside-in business unit strategy tool that is used to make an analysis of the attractiveness (value) of an industry structure. The Competitive Forces analysis is made by the identification of 5 fundamental competitive forces: 1. Entry of competitors. How easy or difficult is it for new entrants to start competing, which barriers do exist. 2. Threat of substitutes. How easy can a product or service be substituted, especially made cheaper. 3. Bargaining power of buyers. How strong is the position of buyers. Can they work together in ordering large volumes. 4. Bargaining power of suppliers. How strong is the position of sellers. Do many potential suppliers exist or only few potential suppliers, monopoly? 5. Rivalry among the existing players. Does a strong competition between the existing players exist? Is one player very dominant or are all equal in strength and size.

Sometimes a sixth competitive force is added: 6. Government. Porter's Competitive Forces model is probably one of the most often used business strategy tools. It has proven its usefulness on numerous occasions. Porter's model is particularly strong in thinking Outsidein.

Threat of New Entrants depends on:

Economies of scale. Capital / investment requirements. Customer switching costs. Access to industry distribution channels. Access to technology. Brand loyalty. Are customers loyal? The likelihood of retaliation from existing industry players. Government regulations. Can new entrants get subsidies?

Threat of Substitutes depends on:

Quality. Is a substitute better? Buyers' willingness to substitute. The relative price and performance of substitutes. The costs of switching to substitutes. Is it easy to change to another product?

Bargaining Power of Suppliers depends on:

Concentration of suppliers. Are there many buyers and few dominant suppliers? Branding. Is the brand of the supplier strong? Profitability of suppliers. Are suppliers forced to raise prices? Suppliers threaten to integrate forward into the industry (for example: brand manufacturers threatening to set up their own retail outlets).

Buyers do not threaten to integrate backwards into supply. Role of quality and service. The industry is not a key customer group to the suppliers. Switching costs. Is it easy for suppliers to find new customers?

Bargaining Power of Buyers depends on:

Concentration of buyers. Are there a few dominant buyers and many sellers in the industry? Differentiation. Are products standardized? Profitability of buyers. Are buyers forced to be tough? Role of quality and service. Threat of backward and forward integration into the industry. Switching costs. Is it easy for buyers to switch their supplier?

Intensity of Rivalry depends on:

The structure of competition. Rivalry will be more intense if there are lots of small or equally sized competitors; rivalry will be less if an industry has a clear market leader.

The structure of industry costs. Industries with high fixed costs encourage competitors to manufacture at full capacity by cutting prices if needed.

Degree of product differentiation. Industries where products are commodities (e.g. steel, coal) typically have greater rivalry.

Switching costs. Rivalry is reduced when buyers have high switching costs.

Strategic objectives. If competitors pursue aggressive growth strategies, rivalry will be more intense. If competitors are merely "milking" profits in a mature industry, the degree of rivalry is typically low.

Exit barriers. When barriers to leaving an industry are high, competitors tend to exhibit greater rivalry.

Strengths of the Five Competitive Forces Model. Benefits

The model is a strong tool for competitive analysis at industry level. It provides useful input for performing a SWOT Analysis.

Limitation of Porter's Five Forces model

Care should be taken when using this model for the following: do not underestimate or underemphasize the importance of the (existing) strengths of the organization (Inside-out strategy).

The model was designed for analyzing individual business strategies. It does not cope with synergies and interdependencies within the portfolio of large corporations.

From a more theoretical perspective, the model does not address the possibility that an industry could be attractive because certain companies are in it.

Some people claim that environments which are characterized by rapid, systemic and radical change require more flexible, dynamic or emergent approaches to strategy formulation.

Sometimes it may be possible to create completely new markets instead of selecting from existing ones.

Best Wishes..! -Team MarQuity