DEFINITION BCG MATRIX

Boston Consulting Group (BCG) Matrix is defined by the following authors as follows:

Table 1 Definition of BCG Matrix

Pearce (2013) David (2012)

BCG Matrix is an approach pioneered

by the Boston Consulting Group that

attempted to help managers “balance”

the flow of cash resources among their

various businesses while also

identifying their basic strategic purpose

within the overall portfolio.

It is also known as “portfolio

techniques”.

BCG Matrix graphically portrays

differences among divisions in terms of

relative market share position and

industry growth rate.

It allows a multidivisional organization

to manage its portfolio of businesses by

examining the relative market share

position and the industry growth rate of

each division relative to all other

divisions in the organization.

THEORY EXPLANATION OF BCGGROWTH-SHARE MATRIX

The BCG Matrix Growth-Share Matrix positions the products and services in two ways:

i. The rate of growth of the market

ii. The market share of a product/service offered facing the competitors.

Table 2 Definition of market growth rate and relative market share position

Market Growth Rate Relative Market Share Position

Pearce (2013) The projected rate of sales growth

for the market being served by a

particular business.

The market share of a business

divided by the market share of its

largest competitor.

David (2012) N.A The ratio of a division’s own market

share (or revenues) in a particular

industry to the market share (or

revenues) held by the largest rival

firm in that industry.

Structure of the BCG Matrix

Figure 1 The BCG Growth-Share Matrix

Quadrant IQuadrant II

Quadrant III Quadrant IV

Products are classified into four categories which are Question Marks (Quadrant I), Stars

(Quadrant II), Cash Cows (Quadrant III) and Dogs (Quadrant IV).

i. Question Marks (Quadrant I)

Question marks are businesses whose high growth rate gives them considerable appeal

but whose low market share makes their profit potential uncertain. They have a low

relative market share position, yet they compete in high-growth industry. Generally, these

firms’ cash needs are high and their cash generation is low. At a corporate level, the

concern is to identify the question marks that would increase their market share and move

into the star group if extra corporate resources were devoted to them. The firms must

decide whether to strengthen them by pursuing an intensive strategy (market penetration,

market development, or product development) or to sell them.

ii. Stars (Quadrant II)

Stars are businesses in rapidly growing market with large market shares. They represent

the organization’s best long-run opportunities for growth and profitability. They have

high relative market share and a high industry growth rate, which should receive

substantial investment to maintain or strengthen their dominant positions. Some of the

strategies for these divisions to consider are forward, backward and horizontal

integration; market penetration; market development; and product development.

iii. Cash Cows (Quadrant III)

Cash cows are businesses with a high market share in low-growth markets or industries.

Since they generate cash in excess of their needs, they are often milked. Many of today’s

Cash Cows were yesterday’s Stars. The divisions should be managed to maintain their

strong position for as long as possible. Strong Cash Cows may use product development

or diversification for their strategies. On the other hand, as the divisions become weak,

retrenchment or divestiture can become more appropriate.

iv. Dogs (Quadrant IV)

Dogs are businesses with low market share and low market growth. As they face mature

markets with intense competition and low profit margins, they are managed for short-

term cash flow. These businesses are often liquidated, divested, or trimmed down through

retrenchment. When a division first becomes a Dog, retrenchment can be the best strategy

to pursue because many Dogs have bounced back, after strenuous asset and cost

reduction, to become viable, profitable divisions.

STEPS IN DEVELOPING BCG MATRIX

There are 5 steps in developing the BCG matrix. The steps are as below:

Step 1: Choose the unit

Step 2: Define the firm’s market share

Step 3: Calculate the relative market share

Step 4: Find out industry growth rate

Step 5: Draw the circle in a matrix

Step 1: Choose the unit.

BCG matrix can be used to analyze separate business units, separate brands, products or a firm as

a unit itself. Choose the unit that to be analyzed such as product of the firm, firm’s geographical

area, customer segmentation and so forth. Unit that will be chosen will have an impact on the

whole analysis. Therefore, it is essential to define the unit before starting the analysis.

Step 2: Define the firm’s market share.

After the unit has been chosen, define the firm’s market share based on the unit. The market

share of the firm could be calculated based on this formula:

totalrevenue of t heunit for particular yeartotalrevenue of t heunit∈industry for particular year

Step 3: Calculate the relative market share.

The relative market share can be calculated in term of revenue ormarket share. It is calculated by

dividing own brand’s market share (or revenue) by the market share (or revenue) of largest

competitor in that industry.

The formula to calculate:

fir m' smarket s hare/revenuelargest competito r ' smarket share /revenue

For example, if thelargest competitor’s market share in smartphone industry was 25% and Apple

firm’s brand market share was 10% in the same year, Apple relative market share would be only

0.4. Relative market share is given on x-axis. It is top left corner is set at 1, midpoint at 0.5 and

top right corner at 0.

Step 4: Find out industry growth rate.

It can also be calculated by looking at average revenue growth of the leading industry firms.

Market growth rate is measured in percentage terms. The industry growth rate can be found in

industry reports. The increment or decrement of the industry growth should be determined by

comparing the present year’s industry growth with the previous year. If there is any increment

the industry growth rate would be positive (+) and vice versa. The midpoint of the y-axis is

usually set at 10% growth rate, but this can be varied.

Step 5: Draw the circle in a matrix.

After calculating all the measures, mark on the matrix map of the brands. Then, draw a circle for

each brand. The size of the circle should correspond to the proportion of business revenue

generated by that brand.

ADIDAS BCG MATRIX IN 2010 BASED ON FOUR PRODUCT’S LINES

a) Footwear

b) Apparel

c) Hardwear

Products Revenue(million $)

Percent Revenues

(%)

Profits (million $)

Percent Profits

(%)

Relative Market Share

Industry Growth Rate (%)

1)Footwear 5389 44.95 402.9 39.57 0.819 +2.34

2)Apparel 5380 44.87 402.3 39.51 1 +7.66

3) Hardware 1221 10.18 212.9 20.91 1 +3.7

Total 11990 100 1018.1 100 - -

1) ADIDAS – FOOTWEAR

1

2

339.57%

39.51%%

20.91&%

Units Sales for Global Sport FootwearYears 2009 2010Units (billion) 17.1 17.5

Brands Market share 2010 (%)Nike 48.53Adidas 39.78Puma 8.97Under Armor 2.72

Industry Growth Rate – ADIDAS Footwear

Formula:

total sales∈footwear industry 2010−total sales∈ footwear industry 2009tot al sales∈ footwear industry 2009

= 17.5billion−17.1billion

17.1billionx100 %

= 0.0234/2.34

Relative Market Share – ADIDAS Footwear

Formula:

Adidas ( footwearonly)Market Share∈2010Nike (market leader )Market S hare∈2010

= 39.78 %48.53 %

= 0.819/81.9%

Quadrant 2, Stars

Star II Question Marks I

Cash Cows III Dogs IV

Recommended Strategies for ADIDAS – FOOTWEAR

Market Penetration

Adidas can open more outlets in Western Europe including France and Great Britain. So that, they can compete with their competitor Nike

Adidas also can sponsor big event as their marketing strategies. So then, their product will acknowledge by people.

Product Development

Make improvement on their Reebok toning shoes. Produce more ‘green’ product to attract more customer and compete with competitor.

This is because many company more focusing on green initiatives as a means of attracting customer money.

Keep in improvement their current product to compete with competitor.

Medium 0

Low -20

Medium.50

High 1.0

Low0.0

RELATIVE MARKET SHARE POSITION

High +20

39.57%

1

Strategies applicable ApplicabilityProduct development Market development Market penetration

Backward, Forward, or Horizontal Integration

Market Development

Adidas should penetrate and expand its market territory coverage into the areas that Adidas is currently poorly performed or not available, such as France and Great Britain.

Horizontal Integration

Adidas is recommended to integrate with its competitors, to achieve better synergy. For example, Adidas can integrate or co-operate with Nike to organize a multi-sport tournament and then boost their sales at the same time.

Backward integration

Adidas can make good relationship with their supplier. Therefore they can seek ownership or increased control of a firm’s supplier. Adidas can lower their cost if they gain ownership of their supplier.

Forward Integration

Adidas should have good relationship with their distributor. Therefore, they can gain ownership or increased control over their distributors or retailer. By doing this, Adidas product will easier to be recognized and also to be in market because they already have permanent distributors.

44.87%

2) Adidas Apparel

2009 (dollar in millions )

2010 (dollar in millions )

Market share

Adidas 4663 5380 43.74Nike 5244.7 5036.6 40.95U.A. 675.13 876.17 7.12ELY 218.7 235.8 1.92Li Ning 623.86 772.03 6.28Total net sales 11425.39 12300.6

Industry Growth Rate (%)

=12300.6 mil -11425.39mil

11425.39mil

=875.21 mil

11425.39mil

=+7.66

Relative market share

= 43.74

43.74

= 1

Star II Question Marks I

*100

*100

High +20

Medium 0

39.51%2

Cash Cows III Dogs IV

So, apparel is in stars quadrant which is high relative market share and high industry growth

rate.

Recommended Strategies for Adidas (apparel)

Market development

Build companies in Africa because is untapped market and there is no such company operating like Adidas and Nike.

In 2007, Adidas has already won the race against Nike in India, Japan and china.

Product development

Adidas should produce the apparel which can insulate the wearer from cold while whisking away sweat and keep athlete cool in warm climates.

Produce T-shirts and fabrics that can control odour. Produce the apparel which lighter can be parallel with adidas mission which to provide

our entire athlete with the lightest product to make them faster and help them to improve their performance.

Market penetration

Sponsoring more local sports events in existing markets it can develop a brand association with the target customers and can bring more customers in the market. Adidas can further improve this strategy by providing gifts to the winning teams in the matches

Low -20

Strategies applicable ApplicabilityProduct development Market development Market penetration

Backward integration XForward integration

Horizontal integration X

and after the team won the match it can simply communicate its message that these players won because they were using Adidas Products.

Adidas expects to have over 800 stores in Russia/ CIS by the end of the 2011. By 2015, at least 400 stores will be added across Russia, bringing the total store number

to more than 1200.

Backward, Forward or Horizontal Integration

Backward integration

No need to implement.

Forward integration

Adidas plans to add 2,500 stores in China between 2011 and 2015 as the company widens its distribution in that country from 500 cities currently to over 1,400. As part of its new forward integration strategy in China, Adidas plans also to boost its presence in basketball, a sport that Adidas emphasizes less than competitors such as Nike and Li Ning Company, China’s leading sports-apparel maker.

Horizontal integration

No need to implement. Adidas had implemented horizontal integration with Reebook in 2005 and currently Adidas itself is sufficient to maintain its largest market share position in the industry.

3) Adidas Hardware

Year Nike,€ Adidas,

€

Under

Armour,€

Callaway

Golf,€

Li Ning,€

Net Revenue, 2010 755.39mil

l

1,221mil

l

33.1mill 535.21mil

l

62.73mill

Net Revenue, 2009 811.94mil

l

1,076mil

l

38.8mill 535.51mil

l

52mill

Market share (%) 28.9 46.8 1.3 20.5 2.4

Relative market share

= AdidasMarket Share∈2010

( Indsutry Largest Competitor Market Share∈2010)

= 46.846.8

= 1

Year 2009,€ 2010,€

Industry net sales 2,514.25 2,607.43

Industry Growth Rate

=(total sales∈hardware∈2010−total sales∈hardwaremarket∈2009 )

total sales∈hardware market∈2009x100 %

=2,607.43−2,514.25

2,514.25

= 3.7%

Thus, located at Quadrant 2 (STAR). Stars are businesses in rapidly growing market with large

market shares. They represent the organization’s best long-run opportunities for growth and

profitability. They have high relative market share and a high industry growth rate, which should

receive substantial investment to maintain or strengthen their dominant positions. Some of the

strategies for these divisions to consider are forward, backward and horizontal integration;

market penetration; market development; and product development.

Star II Question Marks I

Cash Cows III Dogs IV

Recommended Strategies for Hardware

Backward integration

Medium 0

Low -20

Medium.50

High 1.0

Low0.0

RELATIVE MARKET SHARE POSITION

High +20

320.91%

Strategies applicable ApplicabilityBackward integration /Forward integration x

Horizontal integration xMarket penetration /

Market development /Product development /

Backward integration is highly recommended to be aplied by Adidas because they can seek ownership of suppliers that produce raw materials for hardware products especially balls. Adidas can make an agreement with suppliers from China or Taiwan to increased control of a firm’s suppliers; therefore can improve the performance of production for hardware product due to collaboration from two parties like suppliers and Adidas itself. Adidas will easily supervise and control quality of materials and quantity of productions accordance with target of company.

Horizontal integration

Horizontal integration is not recommended for Adidas because they already become leader in hardware products in year 2010 as their relative market share is one. Thus, they do not need horizontal integration strategy in which acquires other company in the same industry.

Relative market share

= AdidasMarket Share∈2010

( Indsutry Largest Competitor Market Share∈2010)

= 46.846.8

= 1

Forward integration

Forward integration is one of strategies that involve a form of vertical integration whereby activities are expanded to include control of the direct distribution of its products. Therefore, it is not recommended for Adidas to implement this strategy since Adidas already gain control on their own retail stores at Western Europe, European Emerging Markets, North America, Greater China, Other Asian markets and Latin America. Trend sales for year 2009 and 2010 from all retails stores also increased from year to year, thus can directly support that Adidas had able to control their own stores throughout the world.

Source: http://www.adidas-group.com

Market penetration- Open new retail store at existing country. Example in Malaysia, adidas store is only

located at several place such at Kuala Lumpur and Penang. AG can open new store at other state of Malaysia for example Sabah, Sarawak, Terengganu and so forth.

Market development - Open new store at country where the adidas store not there yet. Example: at Brunei,

Mexico and many more.- Advertising in other media. Adidas using an event to advertise their product. Use

other media such as television.

Product development- Can modify (change color, motion, sound, odor, form and shape) and substitute the

product (other ingredients process, power). For example, make the ball (football) more dynamic so that it is easy to kick nicely.