How to Use BCG Matrix

The BCG matrix can be useful to companies if applied using the following general steps.

Step 1 – Choose the Unit. Strategic Business Units, individual brands, product lines or the firm as a whole are all areas that can be analyzed using the BCG matrix. The chosen unit drives the entire analysis and key definitions. The market, industry, competitors and position will all be based on the chosen unit.

Step 2 – Define the Market. Following the choice of the unit or area to be analyzed, the most important stage for the rest of the matrix is the definition of the market. An incorrectly defined market will lead to an incorrect classification of the unit. A Mercedes-Benz analyzed in a passenger vehicle market will be a dog with a small market share. However, analyzed within a luxury car market, it will be a cash cow.

Step 3 – Calculate Relative Market Share. At this stage, the relative market share for the chosen unit needs to be calculated. This can be done in terms or revenues or marker share. The formula used here us a division of the selected brand’s market share or revenues by the market share or revenues of the biggest competitor in the industry. The result in plotted on the x-axis.

Step 4 – Calculate Market Growth Rate. Online industry reports can be used to find the rate of growth for the industry. If this is not possible, then it can be estimated by looking at the average revenue growth of the leading firms in the industry. This measurement is a percentage and is plotted on the y-axis.

Step 5 – Draw Circles on the Matrix. Once all the measures are calculated, they can be put onto the matrix. This can be done by drawing a circle for each brand within a unit, or all the brands in a company. The size of each circle should correspond to business revenue generated by the brand.

EXAMPLES

Nestle

According to an analysis posted here, the BCG matrix analysis for Nestle reveals some interesting perspectives. A global multinational in the food and beverage industry, the Swiss company is the 69th highest revenue producer in the world. Over 8000 brands fall within its umbrella and are as widespread as bottled water and pet food. The company announced plans to sell off under-performing brands which were consistently showing poor sales. This analysis used the 2002 annual report for its figures which can be found here.

• Question Marks – Here, the question marks have a low market share within a high growth market. The product mentioned here requires an influx of investment to capitalize on potential segments. This investment is however, not likely to yield too much return investment.
• Stars – These brands have a high share in a high growth market. Nestle’s varied mineral water is in this quadrant. The brands in this are require investment to maintain their position and differentiation in both mature and emerging markets.
• Dogs – The Nestle products in this category have a lower market share in a low growth market. An example of this is a lean cuisine unit and weight loss management brands which did not take off outside the US. A sports performance and nutrition brand called PowerBar is also confirmed to be divested by the company most likely due to poor sales in a saturated market. These products generate enough revenue to sustain themselves but are not exciting not major sources of revenues.
• Cash Cows – These brands are important because of their cash generating potential. This means that they have a higher market share in a slow-growth industry. Very little investment is needed by these brands and funds generated from them are used to fuel Stars or Question Marks.






Source:https://www.cleverism.com/how-to-apply-bcg-matrix-to-your-company/