MM101 ASSIGNMENT

Question 9

● Explain the BCG model

● With reference to Econet Wireless apply the BCG model clearly showing products in
each quadrant and the respective cash consumption and cash generation situation
● Examine the weaknesses associated with the BCG model as a product planning model
INTRODUCTION
The Ansoff and Porter models can help in deciding which strategy to adopt and are easy
models to use. However, marketers need more than these simple guidelines; they need to be
able to analyse their product offering and measure progress. Because of this the BCG model
have been developed . Boston Consultancy Group Matrix (BCG)- Using the variables of
market share and market growth rates, planners can plot their products/SBUs onto a grid
which will then suggest certain strategies that can be used. Because analysis is undertaken on
an individual basis (SBU/product) it means that firms can mix and match their efforts in order
to achieve optimum results at any given time.

The Boston Consulting Group Matrix (also known as the Boston Consulting Group analysis,
the Growth-Share Matrix, the Boston Box Matrix or Product Portfolio Matrix) was created by
Bruce D. Henderson for the Boston Consulting Group in 1970. It is a business planning tool that was
formulated to evaluate the strategic position of a firm’s brand portfolio and inform the long term
strategic planning for organisations with multiple business units or products. Its purpose is to inform
organisations consider growth opportunities by reviewing their brand portfolios to decide where to
invest, discontinue or develop products.

Figure 1 BCG Matrix

The BCG Matrix classifies a firm’s services or products into a 2-by-2 matrix. Each quadrant is
classified as low or high performance depending on relative market share and market growth. Once
the products/SBU’s are positioned on the matrix, strategies can be developed based on their relative
positions.

The matrix makes the following assumptions:

 An increase in relative market share will result in increased cash flow

 The firm benefits from utilising economies of scale and gains a cost advantage over
competitors
 Growth rate above 10% is considered high and below 10% is considered low.

STARS

These are products in a high growth market and make up a sizeable portion of the market (potentially
market leaders). They generate large sums of money due to their high relative market share but also
require significant investment to fight off competition and maintain their rate of growth. Businesses
hope their Stars will become the next Cash Cows. When growth slows down

CASH COWS

These are products with high market share in a slow growing/mature industry. After years of
operating in the industry, market growth may decline and revenues stagnate. At these stage Stars
transform into Cash Cows. Given their large market share in a mature market, profits and cash flows
are high. However, because of the lower growth rate, investments should also be low. Cash Cows
typically generate cash in excess of the amount needed to maintain the business and the excess cash is
“milked” for investment in other business units i.e. Stars and Question Marks.

QUESTION MARKS (PROBLEM CHILD)

These are products with low market share in a rapidly growing market. Typically, these are
managerially intense and require significant investment and resources to increase their market share.
They are funded by products and in the Cash Cow quadrant. These products have potential to gain
market share and turn into Stars (with the right levels of support/investment) and eventually Cash
Cows when the market growth declines.

DOGS (CHARITABLY CALLED PETS)

These products have low market share in a mature slow growing market. While they are able to fund
themselves/break even and provide cash flows, they can never reach the Star quadrant. These are
typically phased out, depending on the amount already invested in them, unless they are
complimentary to an existing product or being used for a competitive purpose.

The matrix, simplified suggests that Question Marks and Stars should be funded by profits from the
Cash Cows and dogs should be divested or liquidated and the proceeds put to better use. This will
leave the business a balanced portfolio of Question Marks, Cash Cows and Stars and guarantee
positive cash flows in the future.

BCG Matrix: Cash Position for Products

Stars

Revenue + + +
Investment - - -
0

Question Marks

Revenue + +
Investment - - -_
+++

Dogs

Revenue +
Investment -
0

Cashcow
Revenue + + +
Investment -____
+ +_

Strategies suggested by the matrix are:

 Build – for "Stars" to increase share, even if it means giving up short-term profits.
 Hold – for "cash cows" which are strong, to preserve share.
 Harvest – for weak "cash cows", where the future is poor, or for "question marks"
and "dogs" to increase short-term cash flow regardless of long-term effects.
 Divest – to sell off, liquidate or delete an SBU which is a "dog" or "question mark"
draining resources.
BCG MATRIX FOR ECONET ZIMBABWE

QUESTION MARKS STARS

MARKET GROWTH

DOGS CASH COWS

MARKET SHARE

Figure 2BCG Matrix for Econet Wireless Zimbabwe

Question Marks – Econet Solar

This product has a relatively low market share in a rapidly growing market. The product has
yet to achieve a position of dominance in the market. Although it is generating funds, it still
requires a lot of investment and Econet Wireless Zimbabwe must decide if they want to
continue investing in it. Econet has the financial muscle and advantage of economies of scale
which it can utilise to give it a cost and price advantage over its competitors and to enable it
to provide solar solutions to the market on the requisite scale. While this product is
investment, management and skills intensive, Econet may opt to channel revenue from their
Cash Cows, Buddie and EcoCash towards this Question mark which could easily become a
star as consumers seek alternative energy sources going beyond the current power challenges
bedevilling the country.
Stars – Econet Broad Band
Econet Broad Band has relatively high market share in a high growth market. Statistics show
that there are more than 4.5 million (and growing) internet subscribers in the country. Econet
has firmly entrenched itself as the leader in this fast growing market through innovation –
they have the widest data coverage in the country, they were the first internet provider to
offer 4G Long Term Evolution (LTE) technology offering users download speeds of ten
times that of 3G, they are the only Apple certified LTE network in Zimbabwe and a Samsung
recommended data network of choice. The Internet has become part of everyone’s day to day
life and as such, Econet has developed solutions such as Connected Home, Connected
Lifestyle, OWNAI and Ruzivo that help consumers on a daily basis. All this product
development and investment is costly as is advertising to keep Econet’s product uppermost in
the consumers’ minds and reinforce the perception that theirs is the superior offering. Given
the market’s potential for growth the firm clearly feels this is money well spent. As the
market matures and growth declines the brand is likely to evolve into a cash cow which will
carry newly developed products into stardom.

Cash Cows – Buddy and EcoCash

Cash Cows are products with high market share in a mature/slow growing market. These
products have market dominance and require little expenditure as they have reached market
saturation point.
Buddie, Econet’s pre-paid mobile offering was launched in September 2011 now boasts over
13 million subscribers in Zimbabwe and continues to dominate the mobile voice market.
Profits and cash flows from this brand are high but because of the age of the market
investment has reduced significantly. The brand has adopted a monopoly like approach with
reluctance to promote or lower prices to retain market share and opted to ride on their country
wide coverage and reliability of their services as opposed to their 2 competitors Telecel and
NetOne who are willing to continue increasing promotional spend on their voice mobile
portfolios.
EcoCash has a high market share in the mobile money transfer market. EcoCash was
developed to generate a new recurring revenue stream to counter the decline in the mobile
voice revenue as the market stagnated. It was launched on 29 September 2011 and achieved
market dominance in the mobile money sector with products such as EcoCash Payroll,
EcoCash Diaspora, the EcoCash Debit Card and bill payments being developed to provide
unrivalled convenience and a holistic mobile money solution to the consumers. According
to POTRAZ’s Consumer Satisfaction Report the EcoCash platform is conducting almost 99%
of the total money transfer services while the other two main mobile money platforms
NetOne’s OneMoney and Telecel’s Telecash are struggling to gain traction. “EcoCash has a
94.5 percent market share of the sector, followed by OneMoney with a 4.7% stake and
Telecash with a mere 0.8 percent stake,” the report says.

Econet can milk these cash cows and use excess funds from their profits to develop Econet
Solar and supplement Econet Broad Band where necessary.

Dogs - Econet premium

Dogs have weak market share in low growth or stable markets these products include Econet
Premium, as implied buy its name is a niche product, targeting business executives and the
upper class clientele. It offers fast, efficient, reliable communication both at home and
abroad and is a revamped and rebranded version of the Business Partna brand. The size of the
market is limited, hence growth is limited too. The product will never make it into the Star or
Cash Cow quadrants. Dogs typically take up more time and money than they are worth -
consuming cash, even if it is just in the time taken to manage them. They usually produce
low profits and often incur losses. Econet must decide whether to do away with the
portfolio and use their savings on more profitable portfolios or nurse it for the benefit
of their elite clients.
The Boston Group suggests that investment should principally be channelled into stars and
those which could be promoted to star status. Investment in cash cows should be at the level
necessary to maintain market share. The profitability of dogs should be monitored closely and
the organisation should divest from unprofitable dogs. It should also withdraw from question
marks which do not have star potential.

Conclusion
The BCG model is a useful strategic planning tool as it enables firms to identify opportunities
and weaknesses in its various portfolios or brands. It has, however, been criticised as
follows:

 It neglects the effects of synergies between business units

 It is difficult to plot information accurately. The sizes of circles, unless done by
computer modelling, can only ever be estimated.

 It is not fair to expect all SBUs to have the same rate of return or market share, etc.
The whole point of this method is to assess the position of each product, or SBU, and
different markets will have different growth rates. It is therefore really better to plot
only one product or SBU onto a BCG matrix.

 If the model is used as a predictor of cash usage, valuable products may be left to
stagnate and die owing to lack of investment.

 The model only uses market share and market growth as variables. Companies with
a small market share can be highly profitable and inversely, a high market share does
not necessarily lead to profitability.

 The model ignores environmental factors which may have an impact on performance.

 Positioning can encourage planners to develop bad habits, e.g. not allowing enough
funds to maintain the Cash Cows so that they grow weak. Planners can also
sometimes leave them too over-funded and fail to invest in other categories.