Relative market share= SBU Sales/ Leading competitors sales
Market growth rate=Industry sales this year/Industry sales last year
It is a 2*2 matrix which provides a detailed analysis of each of the SBUs based on the above 2 metrics.
BCG matrix has 4 cells with different levels of market share and industry performance. Accordingly the 4 cells are calls are cells are called as Stars, Dogs, Question marks and Cash cows.
10 x 1 x 0.1 x
BCG matrix helps to determine the resource allocation to be done to each of the SBU depending on its location on the BCG Matrix.
The SBUs in this cell have a high market share and survive in a highly growing industry. They also require huge investments to maintain their competitiveness and businesses try to convert them into cash cows.
2. Cash Cows
These SBUs command a huge market share but in a slow growing or a mature industry. They require little investments and generate huge returns. They act as the stable income generating resource of the firm.
3. Question Marks
These SBUs have low market share but are present highly growing industries. They generally demand huge investments to maintain their market share and the firm has to be very vigilant to analyze these SBUs and accordingly take decisions. If the firm sees potential in developing these, then they can get converted into stars and then into cash cows over the period of time.
These SBUs have low market share and are present in slowly growing markets. Instead of providing returns, they consume a lot of cash and provide cost disadvantages to the firm. Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitor’s/.rival firms. If the firm does not sees it useful, they should be liquidated and the returns invested in either question marks or stars.