Essay About Problems Of The Bcg Matrix And Market Share

Limitations / problems of the BCG Matrix 1. The problems of getting data on the market share and market rate 2. There is no clear definition of what constitutes a Ў®marketЎЇ 3. A high market share need not necessarily lead to profitability all the time. 4. The model employs only two dimensions ЁC market share and growth rate. This may tempt management to emphasis a particular product or divest prematurely. 5. Low share businesses can be profitable too. 6. It considers the product or SBU only in relation to one competitor: the market leader. It misses small competitors with fast growing market shares. Critiques of BCG Matrix 1. In another word: by definition, only a single company can have a share greater than 1.0 in any given market. Thus, in the BCG matrix, there can be but one cash cow or one star per market. 2. The BCG model implies resource allocation rules regarding cash usage. Assumptions of BCG 1. This matrix assumes that a larger market share in a growth market leads to profitability. An effort to obtain a large market share in a slowly growing market requires too much cash. 2. The higher the growth rate, the easier to gain market share Uses / Application of BCG Matrix 1. 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 low enough to get early market share leadership. Once it becomes a star, it is destined to be profitable. 2. BCG model is helpful to management in evaluating the firmЎЇs current balance among stars, cash cow, problem child and dogs. 3. BCG model is applicable to large companies that seek volume and experience effects. 4. The model is simple and easy to understand. 5. It provides a base for management to decide upon and prepare for contingent future courses of action. BCG as a planning tool 1. The BCG growth share matrix is widely used as a strategic planning tool giving planners a sense of direction. 2. The matrix facilitates the strategic planning process and service as a rich source of ideas about possible strategic options. 3. In multi-product organizations, management can use this matrix as a guide to allocate limited resources. BCG MATRIX 22% 10% market growth rate 0% 10x 1.5x 1x 0.1x Relative market share 1. The BCG matrix is plots the businessЎЇs relative competitive position as expressed by the market share and the growth rate of its industry on the vertical axis. The company is represented by as a circle on the matrix. The diameter of the circle represents the size of the business (usually in terms of the sales) in relation to the sizes of other businesses in the portfolio. 2. Market growth rate: represent the annual growth rate of the market in which the business operates. 10% is considered high. 3. Relative