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Cows or dogs in your portfolio?

Cows or dogs in your portfolio?

As well as being included in ACCA, CIMA and CMA (USA) exam questions over the years, the Boston Consulting Group (BCG) Portfolio Matrix is a powerful real life model for managing a portfolio of different products or business units. Designed in the 1970s by Bruce Henderson for the Boston Consulting Group, this matrix helps businesses evaluate their product lines in terms of growth potential and market share.

The Four Quadrants of the BCG Matrix

The BCG Matrix divides products into four categories, based on market growth and market share:

  1. Stars: These are products with high market share in a fast-growing industry. They generate substantial income but also require significant investment to maintain their position and support growth. Example: Tesla’s Model 3 in the electric vehicle market – a dominant player in a rapidly expanding industry.
  2. Cash Cows: Products in this quadrant have a high market share in a mature, slow-growing industry. They require less investment to maintain market position and generate consistent cash flow, which can be used to support other business segments. Example: Microsoft Office software suite, which continues to dominate its sector despite the market’s overall slow growth.
  3. Question Marks: These have a low market share in a high-growth market. They consume a lot of cash but bring in little in return. The strategic decision for these products is whether to invest heavily to gain market share or divest. Example: Meta’s virtual reality initiatives, which are still looking to capture a significant part of the fast-growing VR market.
  4. Dogs: Products with low market share in a mature industry. These are often break-even ventures that tie up capital which could potentially be deployed more effectively elsewhere. Strategic choices might involve divesting or repositioning these products. Example: Traditional compact digital cameras facing a decline as smartphones incorporate increasingly advanced photographic capabilities.

Real-Life Application of the BCG Matrix

Businesses can use the BCG Matrix not just as a snapshot tool but as part of their ongoing strategic planning.

Here’s how the BCG Matrix could be applied to products within Unilever’s product portfolio.

Unilever’s portfolio includes brands across food and beverages, home care, and personal care products, making it a great example to apply the BCG Matrix to:

  1. Stars: Unilever’s plant-based meat alternatives under the “Vegetarian Butcher” brand serve as ‘Stars’ in its portfolio. As the demand for plant-based foods grows globally due to health and environmental concerns, this brand has seen substantial growth. Unilever needs to continue investing in this area to maintain its competitive edge and capitalise on the expanding market.
  2. Cash Cows: One of Unilever’s strongest ‘Cash Cows’ is its Dove beauty products range. Dove holds a significant market share in the mature personal care market. With established brand loyalty and a broad consumer base, Dove generates consistent cash flows that Unilever can use to support other areas of its business that might need more investment.
  3. Question Marks: Unilever’s water purifier brand, Pureit, is a ‘Question Mark’. Although the market for water purifiers is growing, especially in developing countries concerned with water safety, Pureit has not yet achieved a dominant market share and competes with several well-established brands. Unilever faces decisions about increasing investment to boost market share or reconsidering its strategy in this segment.
  4. Dogs: Unilever’s spreads business, which included brands like Flora and I Can’t Believe It’s Not Butter, was once considered a ‘Dog’ due to the declining demand for margarine in favor of more natural alternatives like butter. Recognizing this, Unilever sold this part of its portfolio in 2017 to focus on more profitable areas, demonstrating strategic divestment typical for products in this quadrant.

This analysis shows how Unilever manages its diverse portfolio to maximize effectiveness and efficiency in resource allocation, leveraging the insights provided by the BCG Matrix to make informed strategic decisions.

PepsiCo, a global leader in beverages and snack foods, is another organisation whose portfolio includes a wide range of products, making it an excellent subject for analysing through the BCG Matrix:

  1. Stars: PepsiCo’s energy drink line, particularly the brand Mountain Dew Energy, serves as a ‘Star’ within its product lineup. The energy drink market is experiencing rapid growth globally, driven by a young demographic seeking quick energy boosts. Mountain Dew Energy has captured a significant share of this market, benefiting from PepsiCo’s strong distribution network and marketing prowess. Ongoing investment is crucial to maintain its momentum against fierce competition from other major players like Red Bull and Monster.
  2. Cash Cows: PepsiCo’s flagship product, Pepsi, is a classic ‘Cash Cow.’ It enjoys a dominant share in the mature soda market. While the soda market isn’t expanding rapidly, Pepsi generates substantial stable cash flows, which PepsiCo uses to fund exploration and expansion into new product categories or markets. This segment requires minimal investment compared to its returns, allowing the company to focus on more growth-oriented areas.
  3. Question Marks: Quaker Oat Beverage, a newer entry into the dairy alternative sector, represents a ‘Question Mark’ for PepsiCo. This market is growing as consumer preferences shift towards plant-based diets, but PepsiCo’s product has yet to establish a strong market presence, facing competition from established brands like Almond Breeze and Oatly. Strategic decisions need to focus on whether to significantly increase investment to gain market share or reconsider its position in this competitive space.
  4. Dogs: PepsiCo’s Tropicana Essentials Probiotics juice is an example of a ‘Dog’ in its portfolio. Despite the initial high hopes for functional juices, this product line has struggled to gain traction and faces a stagnant market segment with modest growth prospects. This might prompt PepsiCo to consider divesting or minimising focus on this product line to allocate resources more effectively elsewhere.

Strategic Insights and Actions

Understanding the positioning of business units or products within these quadrants can guide strategic actions:

  • Invest: Typically appropriate for ‘Stars’ and some ‘Question Marks,’ where strategic investment could propel them into leading positions.
  • Harvest: For ‘Cash Cows,’ the strategy involves extracting maximum profits with minimal investment.
  • Divest: ‘Dogs’ are often candidates for divestiture to free up resources for more promising areas.

Conclusion

The BCG Portfolio Matrix remains a valuable framework for business students to understand strategic management practices. By categorising business units or products based on their market dynamics, students can predict their future roles and strategise accordingly. As markets evolve, so should the strategies, making ongoing analysis and adaptation crucial.

Through real-life examples and understanding each quadrant’s strategic implications, business students can gain insights into effective portfolio management, preparing them for successful careers in business strategy and management.

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