BCG GE Strategy Siddhesh Aarti Kalpita

Marketing Strategies

Group 3Siddhesh Amare 02Aarti Deopure 13

Kalpita Choudhary 09

MS_Siddhesh_Aarti_Kalpita 2

Contents

• BCG matrix• GE Features, Limitations• Leaders, Challengers, Followers• Niche strategies


BCG Matrix


BCG Matrix

• Boston Consulting Group.• Categorized products in the four groups:1. Question marks (Problem child)2. Star3. Cash cows4. Dogs• Based on the market share in relation to competition

and the market growth rate.


Overview

• BCG model assumes a market growth rate of 10% as cut off.

• All SBU’s growing at a rate higher than 10% are in the higher growth segment and those growing lower than this are perceived to be in the lower growth segment.



QUESTION MARK• This is a product growing at the rate of more than

10% and hence is in the high growth market.• Many times firm may decide to build a product not

because it is getting good profits but purely for maintaining an image.

• These products require high cash resource.• These products are generally new products and the

firms learning cost is high, compared to the sales revenue generated by these products.

• Existing products are also in this segment.

Question Mark (problem child or wild cat)

• Characteristics:• Businesses in high- growth industries with low relative

market share• Closely responds to the introduction phase of PLC• Require large cash for;

expansion to keep up with rapidly growing market;marketing activities to build market share and catch the industry leader

• These are usually new products or service with good commercial potential

Question Marks

• Strategy:Expansion - if the business feels that it can obtain

dominant market shareRetrenchment – in other case it is realistic

alternativeQuestion marks can either become ‘stars’ if enough

investment is made or may turn ‘dogs’, if ignored.

Examples: Holiday resorts, light commercial vehicles, home improvement products


STAR• An SBU, which is a market leader in a high growth

market.• Mostly question marks go on to become stars.• It does not mean that star generates surplus or high

profits.• These type of products require cash to maintain

leader status.

Stars

• Characteristics:• High growth, high market share businesses• Market leader in high – growth industry• Corresponds closely to the growth phase of PLC• May or may not be self – sufficient in terms of cash

flow • Often net users rather than suppliers of cash in the

shot- run for the following reasons:investment is high to keep up with rapid market growthto support R&D and marketing activities necessary to maintain a leading market share

Stars• Strategy:

Expansion strategy to establish a strong competitive position

Examples: Petrochemicals, electronics and

telecommunication, fast foods are some of the industries having very high growth rate.


CASH COWS• Over a period of time product reaches saturation

point and the product stops growing.• Once a star has been the market leader and has

deployed strategies to build customer loyalties, it usually becomes a cash cow.

• Cash cow is a SBU that generates cash surplus.• The stronger the cash cow, the higher the cash

generation.• Strong cash cows can be maintained for years.

Cash Cows

• Characteristics:• Former stars with high relative share in slow growth

markets• Generate large amount of cash due to economies of scale

and higher margins• In terms of PLC, these are generally mature businesses• Cash generated here is reinvested in ‘Stars’ and ‘Question

marks’

Cash Cows• Strategy:

• Hold strategy – for strong cash cows if they are to continue yielding large positive cash flows

• Harvest strategy – appropriate for weak cash cows whose future is dim and from which more cash flow is needed

Harvesting generally involves: • eliminating R&D expenditure• not replacing the physical plant and salespeople• reducing advertising expenditures,etc.

Cash CowsExamples • Scooters for Baja Auto• Toothpaste for Colgate• Decorative paints for Asian Paints


DOGS• Products that have lost their position of leadership

and are in the low growth markets.• These are also weak cash cows.• These products or SBUs need to be killed or divested

or they consume lot of management time and scarce resources, which can be utilized somewhere else effectively.

Dogs• Characteristics:

• Low- share businesses in low- growth markets• Usually in late maturity or decline stage of PLC• Generate low profits or losses

Dogs

• Strategy:• Harvest - maximizing short- term cash flow by paring

investments and expenditures until the business is gradually phased out.

• Divest – to liquidate business so that resources can be better used elsewhere.

Examples: Photocopiers, shipping, jute have become dogs for quite a few companies

Firm may decide to retain these businesses if they expect turnaround in the market growth rate



The BCG matrix has two dimensions - market growth and market share

• The market growth rate on the vertical axis indicates the annual growth rate of the market in which the business operates.

• Relative market share on the horizontal axis, refers to the SBU’s market share relative to that of its largest competitor in the segment. It serves as a measure of the company’s strength in the relevant market segment.


• The market growth rate on the Y- axis is a proxy measure for the maturity and attractiveness of industry

• Relative market share is a proxy measure for a business’s competitive strength within its industry.

• Relative market share =

Business’s absolute market share

Market share of leading competitor

23

STAR(Maintain hold)

Revenue ++++Expenses ---

QUESTION MARK(Build/Withdraw)

Revenue +Expenses ----

CASH COWS(Harvest)

Revenue ++++++Expenses --

DOG(Kill/Divest)

Revenue ++Expenses ----

BCG MATRIX



• It is important for the marketer to appreciate that the SBUs change their positions in the growth share matrix over a period of time.

• This change may be brought because of environmental factors like:

o Customer preferenceso Competitive activityo Government policyo Etc.• Marketers needs to continuously evaluate the

product mix and examine the growth of the product vis-a-vis the industry and the largest competitor.


Limitations of BCG


Limitations of BCG

• It is too simplistic.• Link between market share and profitability is not necessarily

strong since even small businesses may be profitable.• Growth rate is considered as the only aspect of industry

attractiveness.• Small competitors with fast growing competitors are ignored.• Market share is the only aspect of overall competitive

competition.• Market growth rate is an inadequate descriptor of overall

industry attractiveness.


• Relative market share is inadequate as a description of overall competitive strength.

• The outcomes of growth - share analysis are highly sensitive to variations in high growth and share are measured.

• The matrix specifies appropriate investment strategies for each business, it provides little guidance on how best to implement those strategies.

• The model implicitly assumes that all business units are independent of one another except for flow of cash.


Limitations of the BCG Matrix (in depth)

• Market growth rate is an inadequate descriptor of overall industry attractiveness. Market growth is not always directly related to profitability or cash flow. Some high-growth industries have been very profitable because low entry barriers and capital intensity have enabled supply to grow even faster, resulting in intensive price competition. Also, rapid growth in one year is no guarantee that will continue in the following year.


• Relative market share is inadequate as a description of overall competitive strength. Market share is more popularly viewed as an outcome of past efforts to formulate and implement effective business –level and marketing strategies than as an indicator of enduring competitive strength. If the external environment changes, or the SBU’s managers change their strategy, the business’s relative market share can shift dramatically.


• The outcome of a growth-share analysis are highly sensitive to variations in how growth and share are measured. Defining the relative industry and served market(i.e. the target-market segments being pursued) also can present problems. E.g.: does Pepsi Cola compete only for a share of the cola market, or for a share of the much larger market for non-alcoholic beverages, such as iced tea, bottled water, and fruit juices?


• While the matrix specifies appropriate investment strategy for each business, it provides little guidance on how best to implement those strategies. While the model suggests that a firm should invest cash in its question mark business, for instance it does not consider whether there are any potential sources of competitive advantage that the business can exploit to successfully increase its share. Simply providing a business with more money does not guarantee that it will be able to improve its position within the matrix.


• The model implicitly assume that all business units are independent of one another except for the flow of cash. Is this assumption inaccurate, the model can suggest some inappropriate recourse allocation decisions. For instance, if other SBUs depend on a dog business as a source of supply-or if they share functional activities, such as common plant or sales force, with that business-harvesting the dog might increase the cost or reduce the effectiveness of the other SBUs.


New BCG matrix

• Introduced in 1989• It is 2*2 matrix showing the size of competitive advantage and the number of approaches to achieve advantages.


• Fragmented business – Are small and confined to region. It is noted that profitability is not related to size, and advantage is gained by focus. There is no premium on growth.

• Specialized business – Has focused segment and are characteristics by steep learning curves. Here the companies must learn to protect their focus.


• Volume business – Are those where economies of scale and increasing returns operate. They are constrained by market segmentation and differentiation. Eg: car industry in Indian market.

• Stalemated business – Are those where it is difficult to gain any advantage. It is their sheer sustaining power which gives them competitive advantage in the market. Eg: Kellogg’s in India.


GE Matrix


Introduction • The two composite value for industry attractiveness

and business strength/competitive position are plotted for each business in a company's portfolio.

• The nine cell of GE matrix are grouped on the basis of low to high industry attractiveness and weak to strong business strength.

• There are 3 zones yellow, green and red.


GE matrix

Strong Average Weak

High

Medium

Low

Business strength

Mar

ket

attra

ctivn

ess


Factors for market attractiveness

• Market size and growth rate.• Industry profit margin• Competitive intensity• Seasonality• Cyclicality• Economies of scale• Technology• Social, environmental, legal and human impacts.


Factors for business strength

• Relative market share• Profit margin• Ability to compete on price and quality• Knowledge of customer and market• Competitive strength and weakness• Technological capability• Caliber of management


GE matrix

Strong Average Weak

High

Medium

Low

Business strength

Mar

ket

attra

ctivn

ess


• Green zone - “Go ahead” to grow and build, indicating expansion strategies, attract major investment.

• Yellow zone - “wait and see” indicating hold and maintain type of strategies aimed at stability and consolidation.

• Red zone - “stop” indicating retrenchment strategies of divestment and liquidation, rebuilding approach for adopting turnaround strategies.


Advantages

• It offers an intermediate classification of medium and average ratings.

• It incorporates a large variety of strategic variables like market share and industry size.

• Is a powerful analytic tool to channel corporate resource to business that combine medium to high industry attractiveness.


Disadvantages

• It only provides broad strategic prescriptions rather than specific business strategy.


Leaders, Challengers, Followers and

Nichers


What is market dominance?

• Market dominance is a measure of the strength of a brand, product, service, or firm, relative to competitive offerings. There is often a geographic element to the competitive landscape. In defining market dominance, you must see to what extent a product , brand, or firm controls a product category in a given geographic area.


Market leaders

• Are the firms that have the largest market share in the relevant product market and usually lead the industry in factors, such as technological developments, products and service attributes, price benchmarks or distribution channel design.


Market LeaderMarket Leader

CounteroffensiveCounteroffensive

PositionPosition

ContractionContraction

PreemptivePreemptiveFlankingFlanking

MobileMobile

Market Leader Strategies

fortificationprotect

weaknesscreate assault

posts

guerrillapsychologicalpreventative

fast, solid strategic withdrawalbroadening fronts


Market leader strategies

1. Expand total market through new users, new uses and more usage.

2. Defend market share through position defense, flank defense, counteroffensive defense, mobile defense and contraction defense.

3. Expand market share through enhancement of operational effectiveness by means of NPD, raising manufacturing efficiency, improving product quality, providing superior support services or increasing marketing expenditure.


1. Expand total market through new users

• New UsersE.g.: perfume: Non-users (market-penetration strategy)men (new market strategy)other countries (geo-expansion strategy)• New usesCereals: as snacks --> increase frequency of useDu Pont nylon: parachute-->pantyhose-->blouses &

shirts --> auto tires -->seat belts -->carpeting


Expand Total Market

Kodak ----- New user, new uses, more uses

Arms and hammer’s baking soda, refrigerator demand and kitchen grace fires

Michelin Tire (French) – French car owners to drive there car more miles per year. More tire replacement


2. Defend market share

Position defense

• Purely defensive not enough• Must take offensive counter-measure

Eg: Coke --> multi segments of cola market--> enter wine market--> acquire fruit drink companies


Coca vs. Peps, Gillette vs. Bick, Hertz vs. Avis

Defend market Share


Flanking defense• Guarding territory not enough• Create outposts/flanks• Protect weak front• Invasion base for counter-attackEg: Hyvee: supermarket still dominant yet facing

challenges from other retailers


Heublein’s brand Smirnoff attack by Wolf Schmidt vodka. Smirnoff price rise by one dollar for the advertising

Flank Defense


Flanking strategyStrengthening via superstore concept • Traditional foods - meat/canned/packaged• Non-traditional --> ethnic foods, wines• Prepared foods --> restaurant, take out, salad bar,

bakery• Non-food retailing --> clothing's, garden store• Services: catering, party planning, video rental, dry

cleaning, photo developer.


Counter-offensive defense

• When attacked most market leaders will respond with counterattack.

• Price cut, promo blitz, product improvement, sales-territory invasion.

Options: “wait and see”• Identify areas of weakness of competitor.Eg: BMW & Mercedes vs Lexus & Infinity• Price cuts• New models for under $45K segment


Mobile defense

• More than aggressively defend• Stretches domain over new territoriesCAUTION: Marketing Myopia --> Marketing Hyperopia

Market diversification:• Reynolds: from cigarettes --> beer, liquor, soft drinks,

frozen foods• MB: shifts more resources into aeronautics, auto

design equipment CAD/CAM.


Contraction defense

• Strategic withdrawal.• Give up weak territories.• Concentrates strength at pivotal positions.

• Eg: Ford retires T-birds and Probe, focuses on Contour & Taurus


3. Expanding market share

• PIMS (Profit impact on market strategy) reports higher with higher market share.

• Argument: Profitability goes with high market share. Caution• Gaining market not necessarily gain profit, depends

on strategy for gaining market share.


Conditions when market share and profit go together

1. Unit costs fall with increased MS• Real gains in economies of scale.• Cost/experience curves.• Intel: significant improvements in both product and

process innovations, and large capital investment in new plants.

2. Target Premium segment• Premium price covers cost of offering higher quality• Strategy used by Mercedes Benz/BMW.


Market challengers• Are firms that have the second, third or lower

ranking in the industry. These firms can either challenge the market leader or choose to follow them. When they seek to challenge the market leader they do so in the hope that they would be able to gain the market share. The tactics adopted by the market challengers have several components.

1. The challenger has to define the objective and the opponents, choose the general attack strategy and then choose the specific attack strategy.

2. The most common objective of the challenger is to increase the market share.

64

FlankingFlanking BypassBypass

FrontalFrontal GuerrillaGuerrilla

EncirclementEncirclement

Market Challenger StrategiesMarket Challenger Strategies


Market challenger strategies

• Frontal attack involving matching opponents in terms of product, price, promotion and distribution.

• Flank attack involving challenging the opponents weak or uncovered geographical or segmental areas.

• Encirclement attack involving a grand move to capture the opponent’s market share by means such as launching an advertisement blitzkrieg, making an unbeatable product related offering or presenting a unique service guarantee.


• Bypass attack involving ignoring the opponent and attacking the easier market by means of diversifying into unrelated products, moving into new geographical areas or leapfrogging into new technologies.

• Guerilla attack involving small, intermittent attack to harass and demoralize the opponent firm and eventually secure a firm foothold in the industry. This could be done by means of price cuts, price discounts, intensive comparative advertising or initiating legal actions.


Frontal attack

• “Head-on” attack • Attacker matches opponent along all parts of

marketing mix

Cases: Shampoo/conditioner market 1977.


Flank attack

• “Concentration against weakness”• Attack strong side - tie up defender’s troops• Real attack: side or rear - catch off guard• Spot uncovered market needs not served by leaders• Identify shifts in market segments - quick entry,

develop segment into strong segments.Case: Beer industry 1970• Miller “discovered” light beer segment: aggressively

pursued new market.


Encirclement attack

• Capture a wide slice of territory via blitzkrieg• Grand offensive in many fronts• Enemy must protect front, rear sides• Attacker offers everything leader offers & more


Bypass attack

• Indirect assault• Avoid enemy; attack easier markets• Three alternative bypass attack strategies:a. Diversify into unrelated productsb. New geographical marketsc. Leapfrog into new technologies

Case: Colgate Vs P&G: futile head-on• expand into non-P&G markets via acquisition


Guerrilla attack

• Harassing & demoralizing opponent• Excellent for small companies.• By launching small, intermittent hit-and-run attacks

to harass and destabilize the leader• Usually use to precede a stronger attack.• e.g. airlines use short promotions to attack the

national carriers especially when passenger loads in certain routes are low


Some Attack Strategies Available to Challengers

1. Price discounts: Fuji vs. Kodak

2. Cheaper goods strategy: Average/low quality at much lower price

3. Prestige goods strategy

4. Product proliferation - Hunt: several flavours, several bottle sizes, Cold cereal market

5. Product innovation strategy

6. Improved services strategy

7. Distribution innovation

8. Manufacturing cost reduction strategy

9. Intensive advertising strategy


Market followers

• Are the firms that imitate the market leaders but do not upset the balance of competitive power in the industry. They prefer to avoid direct attack, keep out of the way of other firms and reap the benefits of the innovations made by the market leaders through imitation.


Market-Follower Strategies

• “Innovative Imitation” argued that a product imitation strategy might be just as profitable as a product innovation strategy.

- Theodore Levitt e.g. Product innovation--Sony

Product-imitation--Panasonic


Market followers strategies• Counterfeiter strategy involving duplicating the market

leaders product and packaging and selling it in black market.

• Cloner strategy involving emulating the market leaders products, name and packaging.

• Imitator strategy involving copying some things from the market leader while retaining some features such as pricing, packaging or advertising.

• Adaptor strategy involves adapting ones own products to those of the market leader and selling them in different markets.


• Each follower tries to bring distinctive advantages to its target market--location, services, financing

• Four broad follower strategies:– Counterfeiter (which is illegal)– Cloner e.g. the IBM PC clones– Imitator e.g. car manufacturers imitate the style

of one another– Adapter e.g. many Japanese firms are excellent

adapters initially before developing into challengers and eventually leaders


Growth market (Examples)

• Fortress/ position defense: Coke vs. Pepsi, Crest, impregnable Tide

• Flanker: Lexus(luxury version of Toyota), HQ(leader with strong presence), Pillsbury biscuit dough.

• Confrontation: Compaq vs. IBM, Dell, Gateway.• Market expansion: Pillsbury variety crescent rolls,

Danish rolls, Nike line extension.• Contraction/strategic withdrawal: IBM abandoned

low end of PC’s, concentrated on lucrative, commercial education segments.


Challengers (Examples)• Frontal attack: Dell superior customer satisfaction +

low price, Helene certis.• Leapfrog: attractively differentiated video cameras

from movie equipments, Digital Camera to video market.

• Flank attack: Japanese cars at low price penetrated US market, Honey well beat IBM.

• Encirclement attack: Cadbury-Schweppes cream soda, Root Bee anything but Cola vs. Coke or Pepsi

• Guerilla attack: Kitchen phones vs. AT&T, Princetown review .


Mature Markets (Example)

• Increase Penetration: Johnson integrated facilities too lower cost of opportunity communication blog, Starbucks.

• Extended use: General foods frozen desserts.• Market expansion: Heinz


Declining markets

• Harvesting: Best beats first web based customer service applications

• Maintenance: Focus on customer service • Profitable survival: Focus on customer service

benefits first. Eg.: P&G liquid soaps • Niche


Market Nichers

• Are firms that carve out distinct niche for themselves which have been left uncovered by the other firms in the industry, or which is of no interest to others.

• There are several means by which the specialization for serving a niche market can be developed.

• Market niche strategies carry the risk that can be identified for focusing on business strategies.

• E.g.. A market leader may choose to expand its own market coverage to serve a niche thereby negating the advantage enjoyed by the market nichers.


Market Nicher Strategies

• Creating niches involves looking foe ways and means by which niches can be identified or created in an industry.

• Expanding niches involves enhancing the coverage of the present niche to include similar market niches or new niches

• Protecting niches involves shielding the niches served from attacks by other firms in the industry


Market-Nicher Strategies

• Smaller firms can avoid larger firms by targeting smaller markets or niches that are of little or no interest to the larger firmse.g. Logitech--mice

Microbrewers--special beers


Market-Nicher Strategies

• Nichers must create niches, expand the niches and protect them

• e.g. Nike constantly created new niches--cycling, walking, hiking, cheerleading, etc

• Market niche may be attacked by larger firms once they notice the niches are successful.


Service Specialist

Quality-Price Specialist

Product/Feature Specialist

Geographic Specialist

Specific-Customer Specialist

Customer-Size Specialist

Vertical-Level Specialist

End-Use Specialist

Nicher Strategies for Advantage


• End user specialist: The firm specializes in serving one type of end use customer. E.g. a value added seller customizes the computer hardware and software for specific customer segments and earns a price premium in the process.

• Vertical level specialization: The firm specializes at some vertical level of the production distribution value chain. A copper firm may concentrate on producing raw copper, copper components, or finished copper products.

• Customer-size specialist: the firm concentrates on selling to either small, medium size or large customers. Many nichers specialize in serving small customers who are neglected by the majors.


• Specific-customer specialist: The firm limits its selling to one or a few customers.many firms sell their entire output to a single company, such as Sears or General Motors.

• Geographic specialist: The firm sells only in a certain locality, region or area of the world.

• Product or product line specialist: The firm carries or produces only one product or product line. A firm may produce only lenses for microscopes. A retailer may carry only ties.


• Product feature specialist: The firm specializes in producing a certain type of products or product features. Rent-a-Wreck, E.g.: is a California car rental agency that rents only “beat up” cars.

• Job shop specialist :The firm customizes its products for individual customers.

• Quality-price specialist: The firm operates at the low or high quality ends of the market. HP specializes in the high quality, high price and of the hand calculator market.


• Service specialist: The firm offers one or more services not available from other firms. E.g. would be a bank that loan requests over the phone and hand-delivers the money to the customers.

• Channel specialist: The firm specializes in serving only one channel of distribution. E.g.: a soft drink company decides to make a very large-sized soft drink available only at gas stations.


What makes a Niche a Good Niche?

General Nicher - Rules• Be satisfied being small.• Stay stealthy, stay healthy.• Don’t be myopic.• The customer’s always right but not

always right for you.• Stick to niching but not necessarily to

your niche.


Multiple Niching

‘ A firm should `stick to its Niching’ but not necessarily to its niche. That is why multiple Niching is preferable to single Niching. By developing strength in two or more niches the company increases its chances for survival.”

- Philip Kotler


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BCG GE Strategy Siddhesh Aarti Kalpita

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