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Concepts of product portfolio
The portfolio concept
The foundation of the portfolio is for efficient allocation of the financial resources for achieving organization objective in a long run.
The amount of fund to allocate to the product depends upon the relation of the expected returns and associated risk.
Peter Drucker has given the product category and the manner in which funds to be allocated to them.
- Tomorrow’s Breadwinners’: Provided with all required resources especially finance.
- Today’s Breadwinners: Since they are sources of cash inflow for the company, they are also provided with necessary resources.
- Product with Potential: The resources are provided only when the product shows some business potential.
- Yesterday’s breadwinners, 5) “also Ran”, 6) Failures are not given any extra finance for their revival and they get deprived of resources.
Q: Explain The BCG Model?
Ans:(Boston Consulting Group)
This is two-by- two product portfolio i.e. multiple business/ products/activities are analyzed using Market Growth Rate and relative Market Share as parameters/ bases.
It has four segments. Namely 1) Dogs, 2) Cows, 3) Stars
And 4) Question Marks
These business segments are categorized based on Cash inflows. The BCG model suggests the a separate strategy for each business segment.
Let us discuss the characteristics and strategy for each segment in detail.
1. Cash cows: The segment characterized by low growth rate and high market share belong to this segment. Usually the products in this segment are in their post maturity stage. Where high market share brings higher cash flows and profit to the company. The strategy suggested is that company should take maximum benefit of this segment to earn money to provide financial base for the company.
Dogs: This segment is characterized by low growth rate and Company’s market share is also low. It means it is giving low profit to the company. In such conditions to make the product competitive is very difficult so the suggested strategy is to liquidate/sale the segment.
Question Mark: This segment has low market share but high growth rate. It means the marketing effort can make this business/product a cash cow so the strategy suggested is to invest more on this product to gain market share and profitability.
The products are called question Mark because they raise a question whether to invest more or not.
Stars: Products with high growth rate and high market share are called Stars. Stars generate high money, profit and represent the best investment opportunities for growth. The strategy suggested is to invest and maximize company’s high relative competitive position.
Q: Explain procedure of building BCG Matrix?
Ans: The step to step procedure of building BCG Matrix:
- Firstly the products/ business activities/ Strategic Business Units are classified
- Each business segment is determined for their respective growth rate and their contribution to company’s market share.
- Accessing the assets employed for each business segment and relative size of the business for the company
- Each business segment is plotted on a matrix of growth and relative market share.
Limitations of BCG matrix
- Assuming profitability from growth and market share is difficult and inconvenient.
- Problems in determining Market Share.
GE’s strategic Business Planning Grid.
The GE strategic matrix is a three by three matrix.which devides industry attractiveness and Business strength into low, medium and highsegments each
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