Enterprises that produce goods or provide services in a large assortment are forced to conduct a comparative analysis of the business units of the company to make a decision on the allocation of investment resources. Maximum financial investments receive priority area of the company, which brings maximum profit. The tool for managing the product range is the BCG matrix, an example of the construction and analysis of which helps marketers make decisions on the development or liquidation of the business units of the company.
The concept and essence of the BCG matrix
The formation of long-term plans of the company, the correct distribution of financial resources between the components of the strategic portfolio of the company occurs through the use of the tool created by the Boston Consulting Group. Hence the name of the instrument is the BCG matrix. An example of building a system is based on the dependence of the relative market share on its growth rate.
The competitiveness of the goods is expressed by the relative market share indicator and is plotted along the X axis. An indicator whose value is greater than one is considered high.
Attractiveness, maturity of the market is characterized by the value of its growth rate. Data on this parameter is plotted on the matrix along the Y axis.
After calculating the relative share and growth rates of the market for each good that the company produces, the data is transferred to a system called the BCG matrix (an example of the system will be discussed below).
Matrix quadrants
When product groups are distributed according to the BCG model, each assortment unit falls into one of the four quadrants of the matrix. Each quadrant has its own name and recommendations for making decisions. Below is a table consisting of the same categories as the BCG matrix, an example of which construction and analysis cannot be done without knowledge of the features of each zone.
Wild cats - Zone of new goods.
- High level of sales.
- Need for investment for further development.
- In the short term, low rate of return.
| Stars - Leaders of a growing market.
- High level of sales.
- Growing profits.
- A significant investment.
|
Dogs - Unpromising products: a new group that failed or products of an unattractive (falling) market.
- Low income.
- Desired disposal or termination of investment.
| Dairy cows - Market products with falling sales.
- Stable profit.
- Lack of growth.
- Minimum costs for holding positions.
- Distribution of income on promising groups of goods.
|
Objects of analysis
An example of constructing and analyzing a BCG matrix is impossible without defining goods that can be considered in the projection of this system.
- Areas of business that are not interconnected. It can be: hairdressing and the production of electric kettles.
- Assortment groups of the company, sold in one market. For example, selling apartments, renting apartments, selling houses and the like. That is, the real estate market is being considered.
- Products classified into one group. For example, the production of glassware, glass, metal or ceramic.
BCG matrix: an example of construction and analysis in Excel
To determine the product life cycle and strategic planning of marketing activities of the enterprise, an example with fictitious data for understanding the topic of the article will be considered.
The first step is the collection and tabulation of data on the analyzed products. This operation is simple, you need to create a table in Excel and enter the enterprise data into it.
The second step is the calculation of market indicators: growth rate and relative share. To do this, you need to enter the formulas for automatic calculation in the cells of the created table:
- In cell E3, in which the value of the market growth rate will be, this formula looks like this: = C3 / B3. If you get a lot of decimal places, then you need to reduce the bit depth to two.
- The procedure is similar for each product.
- In cell F9, which is responsible for the relative market share, the formula looks like this: = C3 / D3.
The result is such a populated table.
According to the table, it is clear that sales of the first product fell by 37% in 2015, and for product 3 increased by 49%. Competitiveness or relative market share in the first category of goods is lower than that of competitors by 47%, but in the third and fourth goods it is higher by 33% and 26%, respectively.
Graphic display
Based on the data in the table, a BCG matrix is constructed, an example of construction in excel of which is based on the choice of a chart of the Bubble type.
After choosing the type of chart, an empty field appears, by right-clicking on it you need to call up the window for selecting data to fill the future matrix.
Having added a row, its data is filled. Each row is a product of the enterprise. For the first product, the data will be as follows:
- The name of the row is cell A3.
- X axis - cell F3.
- Y axis - cell E3.
- The size of the bubble is cell C3.
This creates (for all four benefits) the BCG matrix, an example of constructing the remaining goods is similar to the first.
Change axis format
When all products are graphically displayed on the chart , you have to break it into quadrants. The axes X and U are this distinction. All that is required is to change the automatic settings of the axes. By clicking on the vertical scale, the “Format” tab is selected and the “Selected format” window is displayed on the left of the panel.
Change the vertical axis:
- The minimum value is accepted as "0".
- The maximum value is the average ODR multiplied by 2: (0.53 + 0.56 + 1.33 + 1.26) / 4 = 0.92; 0.92 * 2 = 1.84.
- The main and intermediate divisions are the average ODR.
- The intersection with the X axis is the average ODR.
Change the horizontal axis:
- The minimum value is accepted as "0".
- The maximum value is accepted as "2".
- The remaining parameters are “1”.
The resulting diagram is the BCG matrix. An example of the construction and analysis of such a model will give an answer about the priority development of the assortment units of the company.
Captions
For the final completion of the construction of the BCG system, it remains to create the signatures of the axes and quadrants. It is necessary to select a diagram and turn to the section of the "Layout" program. Using the “Caption” icon, the cursor is brought to the first quadrant and its name is written. This procedure is repeated in the next three zones of the matrix.
To create the name of the chart, which is located in the center of the BCG model, the icon of the same name is selected, which follows from the "Caption".
Following from left to right on the Excel 2010 toolbar of the Layout section, similar to the previous labels, axis labels are created. As a result, the BCG matrix, the construction example in Excel of which was considered, has the following form:
Assortment analysis
Building a diagram of the dependence of market share on its growth rate is half the solution to the strategic marketing task . The crucial moment is the correct interpretation of the position of goods on the market and the choice of further actions (strategies) for their development or elimination. BCG matrix, analysis example:
Product No. 1, is located in the zone of low market growth and relative share. This commodity unit has already passed its life cycle and it does not bring profit to the company. In a real situation, it would be necessary to conduct a detailed analysis of such goods and determine the conditions for their production in the absence of profit from their sale. Theoretically, it is better to exclude this product group and channel the released resources to the development of promising benefits.
Product No. 2 is located in a growing market, but requires investment to increase competitiveness. It is a promising product.
Product number 3 is at the peak of its life cycle. This type of assortment unit has high ODR indicators and market growth rates. An increase in investment is required so that in the future the business unit of the company that produces this product brings a steady income.
Product number 4 - profit generator. The funds received by the company from the sale of this category of assortment units are recommended to be directed to the development of goods No. 2, 3.
Strategies
An example of the construction and analysis of the BCG matrix contributes to the following four strategies.
- Increase in market share. Such a development plan is acceptable for products located in the Wild Cats zone, with the goal of moving them into the Stars quadrant.
- Preservation of market share. To obtain a stable income from “Cash Cows” it is recommended to apply this strategy.
- Decrease in market share. We apply the plan to the weak “Dairy Cows”, “Dogs” and the unpromising “Wild Cats”.
- Elimination is a strategy for Dogs and the hopeless Wild Cats.
BCG matrix: example of construction in Word
The method of constructing a model in Word is more laborious and not entirely clear. An example will be considered based on the data that was used to build the matrix in Excel.
Product | Revenue, units | Sales volume of a leading competitor, den. | Estimated figures | Market growth rate,% |
2014 year | 2015 year | Market growth rate | Relative market share |
Product 1 | 521 | 330 | 625 | 0.63 | 0.53 | -37 |
Product 2 | 650 | 900 | 1600 | 1.38 | 0.56 | 62 |
Product 3 | 806 | 1200 | 901 | 1.49 | 1.33 | 51 |
Product 4 | 1500 | 1050 | 836 | 0.70 | 1.26 | -thirty |
The column “Market Growth Rate” appears, the values of which are calculated as follows: (1-data of growth rates) * 100%.
A table is built of four rows and columns. The first column is combined into one cell and is signed as "Market growth rate." In the remaining columns, it is necessary to combine rows in pairs to get two large cells at the top of the table and two rows at the bottom. As in the picture.
Market growth rate | High (over 10%) | 1 Product No. 1 | 2 Product No. 2 |
Low (less than 10%) | 4 Product No. 4 | 3 Product No. 3 |
Low (less than 1) | High (more than 1) |
Relative market share |
The coordinate “Relative market share” will be in the bottom line, above it - values: less or more 1. Turning to the table data (to its last two columns), the determination of goods by quadrants begins. For example, for the first product, ODR = 0.53, which is less than unity, its location will mean either in the first or fourth quadrant. The market growth rate is a negative value of -37%. Since the growth rate in the matrix is divided by a value of 10%, then clearly the product with the number 1 falls into the fourth quadrant. The same distribution occurs with the remaining assortment units. The result should match the Excel chart.
BCG matrix: an example of construction and analysis determines the strategic position of the assortment units of the company and participates in decision-making on the allocation of enterprise resources.