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Transcript of BCG Matrix
Boston Matrix By: Jhenai Dixon The Boston Matrix (a.k.a. Boston Consulting Group analysis, BCG-matrix, Boston Box, Boston Matrix, portfolio diagram) is a chart that had been created by Bruce Henderson for the Boston Consulting Group in the 1960's A company usually markets a number of products. The Boston Matrix helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis.
It allows analysis of a firm by dividing the products into four (4) categories. The categories the products are placed depends on their market share and their level of growth that occurs in the market To understand the Boston Matrix, you need to understand how market share and market growth interrelate. BCG Matrix Follow along in your manuals on page 76 The size of each circle represents the total amount of revenue earned by each product Characteristics of Cash Cows slow- growing mature market
high consumer awareness
high positive cash flow
low promotional cost
brand value has already been established
development costs have already been recouped (increased profitability)
regarded as boring Cash cow products need to be managed for continued profit so that they continue to generate the strong cash flows that the company needs for its' Stars Examples of Cash Cow products: Characteristics of Star products: immature market
needs heavy investments
fast growing market
advertising and marketing expenditure is high
competition is high
development cost need to be paid back (reduce productivity) After some time, Stars can change their profile into Cash cows or dogs (due to low market share).
There are 2 kinds of Stars: (1) young Stars which are requiring big capital and investing, because they are still evolving and (2) Mature Stars which are self-financing ability. Examples of Cash Crops Smart phones and tablets Characteristics of Question Marks: Heavy promotional cost
Most likely financed could come from cash cow products
Fast growing market
Low market share If question mark product's sales do not improve the business can try product redesign, relaunch or withdrawal from the business Examples of Question Mark products: HMV- diversified its product range to prolong service's life Characteristics of Dog products: shrinking or non-existent market
ties up assets
very low returns
profitable for niche customers
promotional expenses paid off Reasons for keeping Dog products profitable if the product provides synergies
requested from companies which boast a complete range of products
a firm makes subsides loss making products to seem ethical, winning customers and reputation Synergy in general, may be defined as two or more agents working together to produce a result not obtainable by any of the agents independently. Examples of Dog products: How to use the Box Matrix Result of the
Box Matrix USES OF THE BOSTON MATRIX Sample of an BCG Matrix Judge how to manage individual products and the product range given the marketing conditions Helps firms analysis whether they have the portfolio that they want and whether it matches the objectives of the organization Establish what managers need to add or change in order to obtain the desired portfolio The difference between Product Portfolio and the Boston Matrix is products being classified as 'dogs' by the Matrix and as 'products in their declining stage' for product portfolio. Limitations of the Boston Matrix BCG matrix classifies products as low and high, but generally products can be medium also. High market share does not always leads to high profits. There are high costs also involved with high market share. Growth rate and relative market share are not the only indicators of profitability. This model ignores and overlooks other indicators of profitability, e.g. accounting ratios Market growth is used as a measure of a market's attractiveness. The market growth rate says more about the brand position than just its cash flow. Market share is the percentage of the total market that is being serviced by the company. The higher the market share, the higher the proportion of the market the business control.
N.B: The Boston Matrix assumes that if you enjoy a high market share you will be making money, due to economics of scale. (Limitation) The Boston Matrix THE END Please don't fall asleep on us. We are almost finished. The BCG matrix deciphers where business should allocate their available cash to. Following the credit crunch, this is newly important in some sectors because of the limited availability of credit.