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BCG Portfolio Analysis

How to Interpret the Analysis

The Matrix

The portfolio matrix is built on two axes. The horizontal axis (X) tracks the Logarithmic Relative Market Share and the vertical one (Y) shows the Market Growth as a percentage. The picture below summarizes the major aspects to consider when interpreting the matrix.

Matrix BCG Software for Brand Portfolio Analysis and Management

Notice that logarithms to base 10 are used to scale the X axis. Full details of the logarithmic scale computation is given in the Technicalities chapter. At this time, for the sake of simplicity, a logarithmic relative market share of 1 is obtained when the sales of our product exactly match those of our direct competitor. A logarithmic relative market share of 10 equates to our sales being twice those of our competitor, 100 means three times and so on. When our logarithmic relative market share equals 0,1 we are 10 times smaller than our direct competitor.

The Y axis intersects the X axis on the value 1, all bubbles (products) placed on the right side of this value are not market leaders . The Y-axis, market growth, is usually set at the average level of all markets in the portfolio. However this is not always a convenient way of computing it, so the Product Portfolio tool offers two alternatives: the median of all markets or a manually input value. The analyst will use the median to get rid of very high or low growth values that can produce unreliable average figures. It is important to define a coherent crossing value for the Y axis, for it splits the products in fast or slow growing markets, and this affects the way the position of single products will be interpreted and evaluated.

Both leaders and non-leaders can compete in a market with high, slow or negative growth rates. In all cases there are implications concerning cash flow and resources allocation.

There are four different quadrants, or product profiles, displayed on a Portfolio Matrix and, according to BCG, each should be managed observing, at least, the following rules:

1. High Growth Low Share (question marks)

These products live in an uncertain situation. The market is dynamic but their market share is low. The management carrying on these products must plan high investments to keep them competitive and cannot expect returns, least not in the short term. This can be the case with newly launched products. With established products, the divestment option can be evaluated, given the fairly unattractive position of the question marks in the product portfolio.

2. High Growth High Share (stars)

The stars are leaders in dynamic markets. They need large amounts of money to keep investing, yet they also produce cash to finance themselves. This way stars result in a slightly negative or positive saldo. Their strategic orientation must be aggressive to constantly gain market share. These are the products, that will probably be feeding the company's portfolio in the future, and it is important to retain a certain number of them in the current assets.

3. Low Growth High Share (cash cows)

The cows, leaders in mature markets, mainly sustain the cash need of the portfolio . Cows do not have a high cash requirement and generate a large positive saldo. One can expect these products to be under the attack of smaller competitors. The reasonable strategic path for these products is to maintain their market share.

4. Low Growth Low Share (dogs)

Products, which are not leaders and compete in slow growing or recessing markets, are termed dogs. These either need or generate cash. Dogs can definitely be unattractive and it is suggested to harvest them. However, not all dogs are unattractive. In the grid above, the dotted line splitting the low quadrant on the right side of the map in two triangles, divides the very bad products (lower triangle) from the less bad ones (upper triangle). Usually, dogs tend to gather as much cash as possible before being divested, although it can be hard sometimes to keep their saldo positive.

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