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How to allocate funds to various products?

Limited financial resources Need to allocate funds in a balanced

manner to keep up with growth

Five product groups Total requirement = Rs.11 crore Total available funds = Rs. 5 crore

Customers
Market Share Market Growth Rate Problems

Manufacturers of equipments used in telecom exchanges. 20% (market leader) 25% pa


Increase in production capacity to keep pace with the growth and to maintain leadership, 2 crore

Investment Required

Customers
Market Share Market Growth Rate Problems

Telecom Industry for Jelly-filled Cables 20% (market leader) 15% pa


Jelly-filled cables and jointing kits are getting slowly substituted by fibre-optic cables and different type of jointing kits.

Customers
Market Share Market Growth Rate Problems Investment Required

Railways for changing tracks electrically 40% (market leader) 7-8% pa


Expansion of operations to international markets 2.5 crore

Customers
Market Share Market Growth Rate Problems

Diverse industries.
5% 8-10% pa, high demand in international markets
Sick Unit Poor quality & high rejection rates Previous investment of 3 crores & management efforts went futile Further investment in equipments needed to improve quality & get ISO 9000 certification

Investment Required

1.5 crore

Customers Market Share Market Growth Rate Problems

Electronic industries. 6% 20% pa


Inability in meeting production capacity due to financial constraints 5 crore

Investment Required

STARS
MARKET
GROWTH RATE
PRODUCT A

QUESTION MARK
PRODUCT E

CASH COWS
PRODUCT B PROCUCT C

DOGS
PRODUCT D

Relative Market Share

PRODUCTS

Requirement

Product Life cycle

Allocation

A - Transformer Coils B - Cable Jointing Kits, Jelly Filled Cables

2 Crore

Growth

1.5

Decline

C - Electric point Machines D - Steel Forgings

2.50 Crore

Maturity

1.50 Crore

Maturity

E - Switch Mode Power Supply (SMPS)

5 Crore

Growth

2.5

It is in the STAR category as it has a high market growth rate (25%) and a high market share (20%). So it is in the growth phase of product life cycle. To maintain the growth of the star product, the company must invest money to improve its growth and maintain leadership & also to increase the production capacity.

It is a CASH COW as it generates huge revenues for the company. But it is in a decline phase because new substitutes like fiber optic cables are eating up its market share. So we will milk the product and generate as much revenues as we can and not invest any money. Also, the case doesnt mention any budget allocation for product B.

It is also a CASH COW and it is in its maturity phase. Again, our focus will be to invest less and generate maximum revenues. The product has opportunity to grow in export markets so the allocated fund will help it to cater to its overseas demand.

Product D is the weak link of the company. It is in the DOG category and has reached its maturity phase. Already much money and effort has been invested in this product with no result and continued losses. So the best option will be to divest the product.

It is a recently launched product with a high market growth rate and huge demand. It has the potential to become market leader. Our objective will be to move this product from the current QUESTION MARK category to star category in the future. So we will allocate the highest amount to this product.

THANKING YOU