Name: Priyanka Kansara

Roll No: 41
Std: TYBBI/A
Subject: Strategic Management
Topic: Boston Consulting Group Matrix
Boston Consulting Group Matrix
Introduction:
BCG matrix (or growth-share matrix) is a corporate planning tool, which is used to
portray firm’s brand portfolio or SBUs on a quadrant along relative market share axis
(horizontal axis) and speed of market growth (vertical axis) axis.
Growth share matrix is a business tool, which uses relative market share and industry
growth rate factors to evaluate the potential of business brand portfolio and suggest
further investment strategies.

BCG matrix is a framework created by Boston Consulting Group to evaluate the

strategic position of the business brand portfolio and its potential. It classifies business
portfolio into four categories based on industry attractiveness (growth rate of that
industry) and competitive position (relative market share). These two dimensions reveal
likely profitability of the business portfolio in terms of cash needed to support that unit
and cash generated by it. The general purpose of the analysis is to help understand,
which brands the firm should invest in and which ones should be divested.
Understanding the tool:

Relative market share. One of the dimensions used to evaluate business portfolio is relative
market share. Higher corporate’s market share results in higher cash returns. This is because a
firm that produces more, benefits from higher economies of scale and experience curve, which
results in higher profits. Nonetheless, it is worth to note that some firms may experience the
same benefits with lower production outputs and lower market share.

Relative market share. One of the dimensions used to evaluate business portfolio is relative
market share. Higher corporate’s market share results in higher cash returns. This is because a
firm that produces more, benefits from higher economies of scale and experience curve, which
results in higher profits. Nonetheless, it is worth to note that some firms may experience the
same benefits with lower production outputs and lower market share.

There are four quadrants into which firms brands are classified:

Question marks. Question marks are the brands that require much closer
consideration. They hold low market share in fast growing markets consuming large
amount of cash and incurring losses. It has potential to gain market share and become
a star, which would later become cash cow. Question marks do not always succeed and
even after large amount of investments they struggle to gain market share and
eventually become dogs. Therefore, they require very close consideration to decide if
they are worth investing in or not.
Strategic choices: Market penetration, market development, product development,
divestiture.

Stars. Stars operate in high growth industries and maintain high market share. Stars
are both cash generators and cash users. They are the primary units in which the
company should invest its money, because stars are expected to become cash cows
and generate positive cash flows. Yet, not all stars become cash flows. This is
especially true in rapidly changing industries, where new innovative products can soon
be outcompeted by new technological advancements, so a star instead of becoming a
cash cow, becomes a dog.
Strategic choices: Vertical integration, horizontal integration, market penetration, market
development, product development

Dogs. Dogs hold low market share compared to competitors and operate in a slowly
growing market. In general, they are not worth investing in because they generate low
or negative cash returns. But this is not always the truth. Some dogs may be profitable
for long period of time, they may provide synergies for other brands or SBUs or simple
act as a defense to counter competitors moves. Therefore, it is always important to
perform deeper analysis of each brand or SBU to make sure they are not worth
investing in or have to be divested.
Strategic choices: Retrenchment, divestiture, liquidation
Cash cows. Cash cows are the most profitable brands and should be “milked” to
provide as much cash as possible. The cash gained from “cows” should be invested into
stars to support their further growth. According to growth-share matrix, corporates
should not invest into cash cows to induce growth but only to support them so they can
maintain their current market share. Again, this is not always the truth. Cash cows are
usually large corporations or SBUs that are capable of innovating new products or
processes, which may become new stars. If there would be no support for cash cows,
they would not be capable of such innovations.
Strategic choices: Product development, diversification, divestiture, retrenchment

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 as-

1. 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.

BCG MATRIX OF SAMSUNG

Let’s check out the BCG Matrix of Samsung and what products of the
company fall under what Quadrant.

CASH COWS:

Samsung Home appliances which include Samsung AC’s, Refrigerators,

Washing Machines and Cooking Appliances are the Cash Cows for the
company.

Over the years, Samsung Home Appliances have become a household name
and stand for quality and trust. Samsung has been able to attain a good
market share across different industry segments and still holds a good
potential to grow in the coming future.
STARS:

The products or business units that have a high market share in high growth
industry are the stars of the organization. In the case of Samsung, Mobile
phones, Tab, and TV business fall in the Star Category of the BCG Matrix
of Samsung.

Mobile phones: Samsung Galaxy and Note Series are quite a hit among
customers and have their own base of loyal customers. In order to maintain
its market share and ward off the competition, Samsung launches new
smartphones with new features and design.

Samsung TV: LED and OLED TV from Samsung are gaining good traction
from the global market and can be considered as the Stars of the company.
The company is experimenting with new technologies and it coming up with
new TV’s with technologically advanced features to gain customers.
QUESTION MARK:

There are products that formulate a part of the industry that is still in the
phase of development, yet the organization has not been able to create a
significant position in that industry. The small market share obtained by the
organization makes the future outlook for the product uncertain, therefore
investing in such domains is seen as a high-risk decision.

onsidering the performance of all the products that Samsung to

offer, Samsung Printer is one such product which can be placed in the
Question Mark quadrant of the BCG Matrix of Samsung.

High competition and small market share of the product in the industry is
what makes it place in this quadrant.
DOGS:

Dogs are those products that were perceived to have the potential to grow but
however failed to create magic due to the slow market growth.

Failure to deliver the expected results makes the product a source of loss for
the organization, propelling the management to withdraw future investment
in the venture. Since the product is not expected to bring in any significant
capital, future investment is seen as a wastage of company resources, which
could be invested in a Question mark or Star category instead.

With an aim to cater to the growing need of the digital world, Samsung
launched it’s Samsung Smartwatch but the product failed to achieve the
success that it was expected to achieve.
Samsung Smartwatch: Tough competition from competitors like Apple
watch led to the downfall of the product.

Hence Samsung Smartwatch can easily be placed in the Dog quadrant of the
BCG Matrix.