ABC INTERPRET
BCG matrix and BOX model
INTERPRET ABC
• Look at product/customer with best gross and
net margins, may be different ones
– price and cost management is good for the
product/customer
– can be applied to other categories
INTERPRET ABC
• Look at product/customer with lowest gross
and net margins, may be different ones
– Improved price and cost management will
increase the gross margin.
– Increasing sales through marketing will improve
profit values
INTERPRET ABC
• Look at product/customer with largest gross
profit and net profit amounts, may be
different ones
– This is achieved through volume.
– Pricing and marketing efforts appear to have
achieved increased demand and therefore
increased sales
INTERPRET ABC
• Look at product/customer margins in the
middle may be different ones
– Improved price and cost management will
increase the gross margin.
– Increasing sales through marketing will improve
profit values.
BCG Matrix
• Step 1 – Choose the Unit. Strategic Business
Units, individual brands, product lines,
customers or the firm as a whole are all areas
that can be analyzed using the BCG matrix.
The chosen unit drives the entire analysis and
key definitions. The market, industry,
competitors and position will all be based on
the chosen unit.
• Step 2 – Define the Market. Following the
choice of the unit, client or area to be
analyzed, the most important stage for the
rest of the matrix is the definition of the
market. An incorrectly defined market will
lead to an incorrect classification of the unit. A
Mercedes-Benz analyzed in a passenger
vehicle market will be a dog with a small
market share. However, analyzed within a
luxury car market, it will be a cash cow.
• Step 3 – Calculate Relative Market Share. At
this stage, the relative market share for the
chosen unit needs to be calculated. This can
be done in terms or revenues or market share.
The formula used here is a division of the
selected brand’s market share or revenues by
the market share or revenues of the biggest
competitor in the industry. The result in
plotted on the x-axis.
• Step 4 – Calculate Market Growth
Rate. Online industry reports can be used to
find the rate of growth for the industry. If this
is not possible, then it can be estimated by
looking at the average revenue growth of the
leading firms in the industry. This
measurement is a percentage and is plotted
on the y-axis.
• Step 5 – Draw Circles on the Matrix. Once all
the measures are calculated, they can be put
onto the matrix. This can be done by drawing
a circle for each brand within a unit, or all the
brands in a company. The size of each circle
should correspond to business revenue
generated by the brand.
• Nestle
• According to an analysis, the BCG matrix
analysis for Nestle reveals some interesting
perspectives. A global multinational in the
food and beverage industry, the Swiss
company is the 69th highest revenue producer
in the world. Over 8000 brands fall within its
umbrella and are as widespread as bottled
water and pet food.
• Question Marks – Here, the question marks
have a low market share within a high growth
market. The product mentioned here requires
an influx of investment to capitalize on
potential segments. This investment is
however, not likely to yield too much return
investment.
• Stars – These brands have a high share in a
high growth market. Nestle’s varied mineral
water is in this quadrant. The brands in this
are require investment to maintain their
position and differentiation in both mature
and emerging markets.
• Dogs – The Nestle products in this category
have a lower market share in a low growth
market. An example of this is a lean cuisine
unit and weight loss management brands
which did not take off outside the US. A sports
performance and nutrition brand called
PowerBar is also confirmed to be divested by
the company most likely due to poor sales in a
saturated market. These products generate
enough revenue to sustain themselves but are
not exciting not major sources of revenues.
• Cash Cows – These brands are important
because of their cash generating potential.
This means that they have a higher market
share in a slow-growth industry. Very little
investment is needed by these brands and
funds generated from them are used to fuel
Stars or Question Marks.
