mytest > help > Part 2. MM4XL Tools > 1. Strategic Tools > BCG Matrix > Technicalities

BCG Portfolio Analysis

Technicalities

The Logarithmic Scale

The logarithmic scale of the X axis is justified by the fact that the competitive power of one product does not grow linearly with its sales, but rather in a logarithmic manner. For example, the following table shows the sales of our product, held constant over time and equal to 100, the sales of our major competitor, increased in a linear way, the relative market share and the logarithmic market share. These values have been used to draw the graph below and show the importance of working with logarithms.

Matrix BCG Software for Brand Portfolio Analysis and Management

The slope of the curve of the relative market share of our product (called Linear in the graph) slows down almost linearly as the competitor wins share. This means that no reference is made to the increasing power of the competitor, given its fast growing absolute dimension. This is wrong. Indeed, we know that well-managed best selling products get better prices for row materials, large productions sink variable costs, large market shares attract consumption faster than low selling products. These and other factors can boost one company's competitive power, yet decreasingly so.

Matrix BCG Software for Brand Portfolio Analysis and Management

A logarithmic curve drawn on an equally scaled axis is pictured below:

Matrix BCG Software for Brand Portfolio Analysis and Management

The BCG was aware of this and encapsulated the concept in the logarithmic scale of the relative market share. Short term, the larger one product's sales, the stronger its competitive power, yet at a slower increasing degree. The logarithmic relative market share is computed with the formula:

Matrix BCG Software for Brand Portfolio Analysis and Management

Size of the circle

The diameter of the circles displayed on the Product Portfolio Analysis grid is proportional to the product sales. The bigger one product's circle is, the larger its share of sales in the whole products' portfolio. The sum of all shares of sales must equal 1. The size of a product's circle is given by the formula:

Matrix BCG Software for Brand Portfolio Analysis and Management

Lifetime license:

Price: euro

Vote this tool
We proudly serve
Your vote
vote1 vote2 vote3 vote4 vote5
Email:
Gender:
M
F
Age:
Position:
Department:
Comment: