Marketing Management Study Notes

Business-unit strategy
- Determine future business directions and develop strategies for individual
business units
- Strategic business unit (SBU) is a division, product line or other profit centre
within the parent company
- Strategic planners should recognise the different performance capabilities of
each SBU and carefully allocate scarce resources among the divisions
- Market and markets share

The Boston Matrix BCG growth-market share matrix

The BCG matrix provides a framework for allocating resources among different
business units. It is based on the philosophy that a products market growth rate and
its market share are important considerations in determining the market strategy.1
The BCG is a diagnostic tool, giving an indicator of each products expected future
cash contributions and cash requirements. The matrix is thus a tool to evaluate and
determine appropriate strategies for individual products and overall portfolio
strategies.2

The matrix classifies the brand/business into four units: stars, cash cows, question
marks and dogs.

Stars:

SBU/Products with a dominant share of the market and good prospects for
growth.
Still at a stage where they use more cash than they generate to finance
growth, add capacity and increase market share.
High market growth rate
high relative market share
Fast growing marketplace not reached full potential. Generally competing in
a highly attractive marketplace where there is plenty of competitive rivalry.
The market situation: company need to invest in the stars. Typically they are
still expanding their product line, expanding into new geographic markets,
helping grow the overall market and attracting first-time consumers while
defending their market share against aggressive competitors. 3

Cash Cows:

SBU/Cash cows have a dominant share of the market but low prospects for
growth
Typically, they generate more cash than is required to maintain market share.

1 Marketing principles (60)

2 Marketing principles (60)

3 http://www.thebcgmatrix.com/bcg-matrix-theory/bcg-matrix-and-its-four-quadrants/
Question Marks:

SBU/Have a small share of a growing market

Generally require a large amount of cash to build market share

Dogs:

SBU/Have a subordinate share of the market and low prospects for growth;
these products are often found in established markets

Conclusion:
Long term health of an organisation depends on having some products that
generate cash (and provide acceptable profits) and other that use cash to
support growth.
Indicators of overall health: size and vulnerability of the cash cows, the
prospects of the stars, and the number of dogs and question marks.
Expensive products: unless the company has abundant cash flow, it cannot
afford to sponsor many such products at one time.

Extra:

Classifies and characterize an organizations activities in relation to the

markets in which it operates.
To create strategic business units (SBU), or product portfolios, which are then
located on the matrix for analytical purposes.
Provides a big picture view of a businesss position and a basis for thinking
about how to manage each aspect of a portfolio.
Can highlight strategic imbalances in a portfolio such as gaps or areas which
may prove problematic as markets grow, mature or decline.
The matrix focuses on two key aspects of markets: their growth rates as
product or SBUs relative market share by value. Market growth rates are
ranged on the vertical axis and were originally rated between 0-30% with a
growth rate of over 10% being high, and under 10 % low.
High or low growth vary from industry to industry, market to market or time
to time, - practitioners need to make own judgements
Market share is depicted on the horizontal axis on a log scale and shows a
product or SBUs share relative to that of the largest competition in the
market. A relative market share of 1.0 means that its share is equal to that of
the largest competitor; 10 will mean that it is ten time larger and 0.1 will
mean that it has one tenth the share of the largest supplier. The log scale is
used so that equal distances on the axis represent same percentage or
reductions.

Rationale/ Product life cycle: growth rates will significantly affect the
attractiveness of a market to an organization for investment purposes and
relative market share is a good indicator of a business strength in that
market. Growth rates are also of interest because they relate to the stages of
a product life cycle. High growth rates are associates with markets where
customer base is expanding rapidly and in which business should match or
 exceed growth rate to maintain their market share position. Low growth rates
indicate that the market is maturing and implies that a business does not
have to compete with other suppliers for new customers entering a market, in
order to maintain its share of the market.4
The importance of market share derived from the concept of the experience
curve. If a business maintains the position of market share leader produced
more and sold more products compared to competitors. Greater economic
experience, thus lower cost and better knowledge than competitors. Such
economies work hard actively pursued by an organizations management. If
gained should yield cash that can be used for reinvestment in other
products/SBUs; protection against price wars or other marketing efforts of
competitors, or profit distribution.
The knowledge gained from the experience should yield market intelligence,
which should, in turn, make competitive activities more effective. High market
share can also reduce the relative expenditure required for competitive
marketing activities and can often provide a business with the power to
influence a market in terms of price, technical standards, product
development and the way competitive activities are conducted.
Strategies: The products/SBU in each quadrant of the matrix are, therefore,
faced with different marketing tasks. Those in high growth markets, but with a
low market share need to seek market leadership so that when the market
matures, they will be a long way down the experience curve and in a position
of strength in the market. This will require investment to challenge existing
leaders and may force a business to prioritize between several products/SBUs
if they are not to spread their resources too thinly.
A star business or a product that has attained market leadership in high
growth markets. priority will be to invest to maintain leadership against
challenges from the Question Marks of other organizations. As a markets
growth slows, Stars will become Cash Cows if they have protected their
leadership position, but not to the same extent as Stars or Question Marks.
Thus, they can potentially generate cash that can be used to support QM
seeking to become stars in other markets. If a business has a low relative
market share in a mature market, the matrix classifies it as a dog, since it is
unlikely to generate cash to the same extent as the market leader.
Recently the concept of cash cows has been introduced to indicate
products/sbus that have a reasonable market share and which can generate
useful cash flows in spite of not being the market leaders. Sometimes, Dog
products can be very profitable, which is usually a result of holding a position
in a niche market that has been subsumed into a larger market for analysis
purposes.
An unbalanced portfolio can therefore have significant cash flow implications
for a business either now or for the future. As an example, an absence of Cash
Cows will imply a need for external funding if it is to be in a cash generating
position in the future. To many QM may drain a business of cash if it has
ambitions for leadership in each of the markets in which they are launched.
Dogs consume management time and a business must consider whether they

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are holding them for good reasons, since they are unlikely to be contributing
much to the bottom line on their own, and so on.
The implications of the matrix are that organizations need to invest heavily in
QM and Stars, which are potential cash cows, and only moderately in cash
cows and dogs. Thus each category of product will have different cash flow
requirements and will need attention to different marketing priorities. In this
way, a more rational basis for strategy development is possible and the health
of an organization can be more easily assessed from a marketing viewpoint.
o The now-popularized labels given to different quadrants may act as
demotivators for managers, especially if they feel that the organization
views them as only suitable to manage dogs
o Growth and market share are not the only factors that make markets
attractive and that give companies strength in the markets
o The data to position products/SBUs accurately on the matrix are not
available;
o A clear and common definition of the market must be agreed so that
growth and share positions are not distorted.