What does star in BCG matrix?
In this article we describe the BCG Matrix, the model can be used in finding the balance within the present product portfolio to Stars, Cash Cows, Question Marks and Dogs. The BCG Matrix was developed in the 70’s by the Boston Consulting Group and since then plays an important role in the Portfolio Analysis. The model can be used in finding the balance within the present portfolio to
Stars, Cash Cows, Question Marks and Dogs. Furthermore, it is input for an organisation’s strategy. The BCG Matrix is a fairly easy marketing model with which the portfolio of a business can be analysed. Thereby entrepreneurs can take subtantiated decisions with regards to the portfolio and the strategy to be followed. The model distinguishes two axes: This gives the following model: Low market share, high market growth. Supplying little but costing much money. With the correct strategy and money the “question mark” can grow into “star”. High market share, high market growth. “Stars” are leaders within their market and thereby also
generate a large amount of money. On the other hand, much investment is needed in order to extend or preserve the position. Thereby the net yield of the “star” is often minimal. Grow into “Cash Cow”. High market share, low market growth. A “Cash Cow” needs to be milked out. The leading position of the “Star” is successfully retained and through the low growth (mature market) there is little need for more investment. Quietly recoup money and keep it profitable as long as
possible. With the “Cash Cow”, the “Question Mark” and “Star” are financed. Low market share, low market growth. Little profit but also low costs. In principle there can be only one market leader, but in practice there are many products in this category. Avoid high expenses, financial rescue plans and discard the products when they cost much money. Star - holds minimal position, preferably extend position by investing. The “Star” must grow
into “Cash Cow”. Cash Cow - holds minimal position. Ensure that het product does not loose popularity and strive to prolong the lifespan. Dog - When a product is (still) profitable and it has been “milked” to a reasonable extent until it costs money. Retract from the market when a product is making losses. Invest no more money. Question Mark - For some “Question Marks” it doesn’t hold true that a growth strategy needs to be impelemented in order to elevate the product to “Star”. Others will
likely never be profitable and needs to be divested. This is a difficult assessment that a manager must make. He can let himself lead throughout the phase of the product’s lifecycle. Introductory phase can be worthy of investment, maturity phase is less attractive. Market share is not guaranteed for profit. Market growth can be influenced by an organisation (such as giving an impulse) whereby it is no longer an established fact. The model does not take the competition into
account. Interdependence between products is not included. In practice, two products can be strongly dependent upon one another. The model does not take the market into account. A market can, for example, dissipate without warning. It can generally be established that the BCG Matrix provides a simplistic presentation of facts. This, by definition, is not necessarily a disadvantage. BCG Matrix is the most well-known model in Portfolio Analysis mostly for its simplicity.
The model is simple and easy to understand. Thereby it offers everyone an analysis method with which reasoned decisions can be taken based on facts. It is therefore an excellent model despite the critical remarks. 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 it’s portfolio on the basis of their related market share and industry growth rates. It is a two dimensional analysis on management of SBU’s (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 SBU’s are in same industry, the average growth rate of the industry is used. While, if all the SBU’s 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.
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Limitations of BCG MatrixThe 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-
Authorship/Referencing - About the Author(s)The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url. What does Star mean in marketing?Stars (high share and high growth)
This means that star products can be seen as market leading products. These products will need a lot of investment to retain their position, to support further growth as well as to maintain its lead over competing products.
What is a star in strategic management?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.
What is a star in business?The business units or products with the best market share and generating the most cash are considered Stars. Monopolies and first-to-market products are frequently termed Stars too. However, because of their high growth rate, Stars consume large amounts of cash.
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