On the vertical axis market growth rate provides a measure of market

On the vertical axis market growth rate provides a

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On the vertical axis, market growth rate provides a measure of market attractiveness. On the horizontal axis, relative market share serves as a measure of company strength in the market. The growth-share matrix defines four types of SBUs: Growth-share matrix A portfolio planning method that evaluates a company’s SBUs in terms of its market growth rate and relative market share. 1. Stars. Stars are high-growth, high-share businesses or products. They often need heavy investments to finance their rapid growth. Eventually their growth will slow down, and they will turn into cash cows. 2. Cash Cows. Cash cows are low-growth, high-share businesses or products. These established and successful SBUs need less investment to hold their market share. Thus, they produce a lot of the cash that the company uses to pay its bills and support other SBUs that need investment. 3. Question Marks. Question marks are low-share business units in high-growth markets. They require a lot of cash to hold their share, let alone increase it. Management has to think hard about which question marks it should try to build into stars and which should be phased out. 4. Dogs. Dogs are low-growth, low-share businesses and products. They may generate enough cash to maintain themselves but do not promise to be large sources of cash.
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Figure 2.2 The BCG Growth-Share Matrix Once it has classified its SBUs, the company must determine what role each will play in the future. It can pursue one of four strategies for each SBU. It can invest more in the business unit to build its share. Or it can invest just enough to hold the SBU’s share at the current level. It can harvest the SBU, milking its short-term cash flow regardless of the long-term effect. Finally, it can divest the SBU by selling it or phasing it out and using the resources elsewhere. The company needs to add new products and units continuously so that some of them will become stars and, eventually, cash cows that will help finance other SBUs. Problems with Matrix Approaches The BCG and other formal methods revolutionized strategic planning. However, such centralized approaches have limitations: They can be difficult, time consuming, and costly to implement. Management may find it difficult to define SBUs and measure market share and growth. In addition, these approaches focus on classifying current businesses but provide little advice for future planning. Developing Strategies for Growth and Downsizing Beyond evaluating current businesses, designing the business portfolio involves finding businesses and products the company should consider in the future. The company’s objective must be to manage “profitable growth.” Marketing needs to identify, evaluate, and select market opportunities and establish strategies for capturing them.
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