BCG Matrix

Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by BCG,
USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic representation for
an organization to examine different businesses in its portfolio on the basis of their related market
share and industry growth rates. It is a two dimensional analysis on management of SBUs (Strategic
Business Units). In other words, it is a comparative analysis of business potential and the evaluation
of environment.

According to this matrix, business could be classified as high or low according to their industry growth
rate and relative market share.

Relative Market Share = SBU Sales this year leading competitors sales this year.

Market Growth Rate = Industry sales this year - Industry Sales last year.

The analysis requires that both measures be calculated for each SBU. The dimension of business
strength, relative market share, will measure comparative advantage indicated by market dominance.
The key theory underlying this is existence of an experience curve and that market share is achieved
due to overall cost leadership.

BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical
axis denoting market growth rate. The mid-point of relative market share is set at 1.0. if all the SBUs
are in same industry, the average growth rate of the industry is used. While, if all the SBUs are
located in different industries, then the mid-point is set at the growth rate for the economy.

Resources are allocated to the business units according to their situation on the grid. The four cells of
this matrix have been called as stars, cash cows, question marks and dogs. Each of these cells
represents a particular type of business.

10 x 1x 0.1 x

Figure: BCG Matrix

1. Stars- Stars represent business units having large market share in a fast growing industry.
They may generate cash but because of fast growing market, stars require huge investments
to maintain their lead. Net cash flow is usually modest. SBUs located in this cell are attractive
as they are located in a robust industry and these business units are highly competitive in the
industry. If successful, a star will become a cash cow when the industry matures.
 2. Cash Cows- Cash Cows represents business units having a large market share in a mature,
slow growing industry. Cash cows require little investment and generate cash that can be
utilized for investment in other business units. These SBUs are the corporations key source
of cash, and are specifically the core business. They are the base of an organization. These
businesses usually follow stability strategies. When cash cows loose their appeal and move
towards deterioration, then a retrenchment policy may be pursued.

3. Question Marks- Question marks represent business units having low relative market share
and located in a high growth industry. They require huge amount of cash to maintain or gain
market share. They require attention to determine if the venture can be viable. Question
marks are generally new goods and services which have a good commercial prospective.
There is no specific strategy which can be adopted. If the firm thinks it has dominant market
share, then it can adopt expansion strategy, else retrenchment strategy can be adopted. Most
businesses start as question marks as the company tries to enter a high growth market in
which there is already a market-share. If ignored, then question marks may become dogs,
while if huge investment is made, then they have potential of becoming stars.

4. Dogs- Dogs represent businesses having weak market shares in low-growth markets. They
neither generate cash nor require huge amount of cash. Due to low market share, these
business units face cost disadvantages. Generally retrenchment strategies are adopted
because these firms can gain market share only at the expense of competitors/rival firms.
These business firms have weak market share because of high costs, poor quality, ineffective
marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if there is
fewer prospects for it to gain market share. Number of dogs should be avoided and minimized
in an organization.

Limitations of BCG Matrix

The BCG Matrix produces a framework for allocating resources among different business units and
makes it possible to compare many business units at a glance. But BCG Matrix is not free from
limitations, such as-

1. BCG matrix classifies businesses as low and high, but generally businesses can be medium
also. Thus, the true nature of business may not be reflected.

2. Market is not clearly defined in this model.

3. High market share does not always leads to high profits. There are high costs also involved
with high market share.

4. Growth rate and relative market share are not the only indicators of profitability. This model
ignores and overlooks other indicators of profitability.

5. At times, dogs may help other businesses in gaining competitive advantage. They can earn
even more than cash cows sometimes.

6. This four-celled approach is considered as to be too simplistic.

Porters Five Forces Model of Competition

Michael Porter (Harvard Business School Management Researcher) designed various vital
frameworks for developing an organizations strategy. One of the most renowned among managers
making strategic decisions is the five competitive forces model that determines industry structure.
According to Porter, the nature of competition in any industry is personified in the following five forces:

Threat of new potential entrants

Threat of substitute product/services

Bargaining power of suppliers

Bargaining power of buyers

Rivalry among current competitors

FIGURE: Porters Five Forces model

The five forces mentioned above are very significant from point of view of strategy formulation. The
potential of these forces differs from industry to industry. These forces jointly determine the profitability
of industry because they shape the prices which can be charged, the costs which can be borne, and
the investment required to compete in the industry. Before making strategic decisions, the managers
should use the five forces framework to determine the competitive structure of industry.

Lets discuss the five factors of Porters model in detail:

Risk of entry by potential competitors: Potential competitors refer to the firms which are not currently
competing in the industry but have the potential to do so if given a choice. Entry of new players
increases the industry capacity, begins a competition for market share and lowers the current costs.
The threat of entry by potential competitors is partially a function of extent of barriers to entry. The
various barriers to entry are-

Economies of scale

Brand loyalty

Government Regulation

Customer Switching Costs

Absolute Cost Advantage

Ease in distribution

Strong Capital base

Rivalry among current competitors: Rivalry refers to the competitive struggle for market share
between firms in an industry. Extreme rivalry among established firms poses a strong threat to
profitability. The strength of rivalry among established firms within an industry is a function of following
factors:

Extent of exit barriers

Amount of fixed cost

Competitive structure of industry

Presence of global customers

Absence of switching costs

Growth Rate of industry

Demand conditions

Bargaining Power of Buyers: Buyers refer to the customers who finally consume the product or the
firms who distribute the industrys product to the final consumers. Bargaining power of buyers refer to
the potential of buyers to bargain down the prices charged by the firms in the industry or to increase
the firms cost in the industry by demanding better quality and service of product. Strong buyers can
extract profits out of an industry by lowering the prices and increasing the costs. They purchase in
large quantities. They have full information about the product and the market. They emphasize upon
quality products. They pose credible threat of backward integration. In this way, they are regarded as
a threat.

Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the industry.
Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of
inputs( labour, raw materials, services, etc) or the costs of industry in other ways. Strong suppliers can
extract profits out of an industry by increasing costs of firms in the industry. Suppliers products have a
few substitutes. Strong suppliers products are unique. They have high switching cost. Their product is
an important input to buyers product. They pose credible threat of forward integration. Buyers are not
significant to strong suppliers. In this way, they are regarded as a threat.

Threat of Substitute products: Substitute products refer to the products having ability of satisfying
customers needs effectively. Substitutes pose a ceiling (upper limit) on the potential returns of an
industry by putting a setting a limit on the price that firms can charge for their product in an industry.
Lesser the number of close substitutes a product has, greater is the opportunity for the firms in
industry to raise their product prices and earn greater profits (other things being equal).

The power of Porters five forces varies from industry to industry. Whatever be the industry,
these five forces influence the profitability as they affect the prices, the costs, and the capital
investment essential for survival and competition in industry. This five forces model also help in
making strategic decisions as it is used by the managers to determine industrys competitive structure.

Porter ignored, however, a sixth significant factor- complementaries. This term refers to the reliance
that develops between the companies whose products work is in combination with each other. Strong
complementors might have a strong positive effect on the industry. Also, the five forces model
overlooks the role of innovation as well as the significance of individual firm differences. It presents a
stagnant view of competition.

Porters Five Forces Analysis of

Samsung
Introduction

Porters Five Forces methodology is used in this article to analyze the business strategies of white
goods makers like Samsung. This tool is a handy method to assess how each of the market drivers
impact the companies like Samsung and then based on the analysis, suitable business strategies can
be devised. Further, companies like Samsung are known to study the markets they want to approach
thoroughly and deeply before they make a move and it is in this perspective that this analysis is
undertaken.

Industry Rivalry

This element is especially significant for Samsung as the other White Goods multinationals like LG,
Nokia, and Motorola not to mention Apple are engaged in fierce competitive rivalry. Indeed, Samsung
cannot take its position in the market for granted as all these and other domestic white goods players
operate in a market where margins are tight and the competition is intense. Apart from this, Samsung
faces the equivalent of the Cola Wars (the legendary fight for dominance between Coke and Pepsi)
in emerging markets like India where Samsung has to contend and compete with a multitude of
players domestic and global. This has made the impact of this dimension especially strong for
Samsung.

Barriers to Entry and Exit

The White Goods industry is characterized by high barriers to entry and low barriers to exit especially
where global conglomerates like Samsung are concerned. Indeed, it is often very difficult to enter
emerging markets because a host of factors have to be taken into consideration such as setting up
the distribution network and the supply chain. However, global conglomerates can exit the emerging
markets easily as all it takes is to handover and sell the business to a domestic or a foreign player in
the case of declining or falling sales. This means that Samsung has entered many emerging markets
through a step-by-step approach and has also exited the markets that have been found to be
unprofitable. This is the reason why white goods multinationals like Samsung often do their due
diligence before entering emerging markets.

Power of Buyers

The power of buyers for white goods makers like Samsung is somewhat of a mixed bag where though
the buyers have a multitude of options to choose from and at the same time have to stick with the
product since they cannot just dump the product, as it is a high value item. Further, the buyers would
have to necessarily approach the companies for after sales service and for spare parts. Of course,
this does not mean that the buyers are at the mercy of the companies. Far from that, they do have
power over the companies, as most emerging market consumers are known to be finicky when
deciding on the product to buy and explore all the options before reaching a decision. This means that
both the buyers and the companies need each other just like the suppliers and the companies, as we
shall discuss next.

Power of Suppliers

In many markets in which Samsung operates, there are many suppliers who are willing to offer their
services at a discount since the ancillary sectors are very deep. However, this does not mean that the
companies can exert undue force over the suppliers as once the supply chain is established; it takes a
lot to undo it and build a new supply chain afresh. This is the reason why white goods makers like
Samsung invariably study the markets before setting up shop and also take the help of consultancies
in arriving at their decision.

Threat of Substitutes

This element is indeed high as the markets for white goods are flooded with many substitutes and
given the fact that consumer durables are often longer term purchases, companies like Samsung
have to be careful in deciding on the appropriate marketing strategy. This is also the reason why
many multinationals like Samsung often adopt differential pricing so as to attract consumers from
across the income pyramid to wean them away from cheaper substitutes. Further, this element also
means that many emerging market consumers are yet to deepen their dependence on white goods
and instead, prefer to the traditional forms of housework wherein they rely less on gadgets and
appliances. However, this is rapidly changing as more women enter the workforce in these markets
making it necessary for them to use gadgets and appliances.

Stakeholders

This is an added element for analysis as the increasing concern over social and environmentally
conscious business practices means that companies like Samsung have to be careful in how they do
business as well as project themselves to the consumers. For instance, white goods makers are
known to decide after due deliberation on everything from choosing their brand ambassadors to
publicizing their CSR (Corporate Social Responsibility) initiatives.

Conclusion

As the diagram above indicates the relative strengths and the weaknesses of each element, we can
now conclude this analysis with the theme that as the global economy integrates and more emerging
markets open up, companies like Samsung are at an advantage because they have already
established themselves in many markets. However, it must also be noted that each market is unique
and hence, Samsung must not adopt a one size fits all strategy and instead, must approach each
market differently. In conclusion, Samsung can take pride from the fact that being an Asian
conglomerate, it has managed to break into and hold its own against many western multinationals that
have been in this business for decades.
SWOT Analysis of Unilever

Introduction

Unilever operates in nearly 190 countries around the world and has been a
traditional paragon of excellence and quality in the Fast Moving Consumer Goods
sector. The company derives its competitive advantage from its global footprint
and its track record of enhancing value for the consumers around the world.
Even in the current recessionary environment, it has managed to grow at a
respectable pace though as we shall discuss latter, Unilever cannot afford to
ignore the emerging threats from a wide range of global, regional, and local
players. Apart from this, as the succeeding SWOT Analysis makes it clear, the
battle for the emerging markets is likely to escalate into a no holds barred
competition with a race to the bottom ensuing between the global giants like
Unilever and Proctor and Gamble and a array of local players.

Strengths

Unilever operates in nearly 190 countries around the world and hence, has a
global footprint combined with top of the mind brand recall among consumers
worldwide.

It has a deep and broad portfolio of brands and a diversified product range,
which makes it uniquely, positioned to tap into the changing consumer
preferences across the world.

Its Research and Development initiatives are heavily funded and manage to
bring to the market innovative and cutting edge products in tune and in line with
consumer preferences.

Unilever has a distinct competitive advantage over its nearest competitor,

Proctor and Gamble because of its flexible pricing and expertise in distribution
channels that manage to reach the nook and the corner of the globe.

The company finds its strengths in leveraging the economies of scale arising
from its breadth of operations as well as synergies between its many
manufacturing facilities, which totaled 270 locations around the world at last
count.

Unilever combines global thinking with local execution, which means that it
pursues Glocal strategies that let it win the hearts and minds of consumers who
would like to use its products that are globally famous yet retain a distinct local
flavor.

Weaknesses

The biggest weakness that Unilever faces is that it operates in an uber

competitive market where the other global giants like P&G and Nestle in addition
to a host of local players challenge its dominance at every turn and raise the
stakes in the Trillion Dollar FMCG (Fast Moving Consumer Goods) space.

The other weakness is that its products can easily be replaced with substitutes
especially in the emerging markets in Africa and Asia where the rural consumers
in the hinterland often use traditional and natural alternatives to the products
that Unilever markets.

Opportunities

With the advent of globalization and the proliferation of global media, consumers
in the emerging markets are aspiring to western lifestyles and this means that
Unilever has a tremendous opportunity waiting for it as it taps into this large and
diversified consumer base that wants to join the league of westerners in taste
and preferences for consumer goods.

Apart from that, capturing the Newly Affluent Trillion Dollar Consumers in China
and India means that it has a golden opportunity to leverage this huge and
growing consumer base, which often tries to imitate and mimic the consumerist
preferences of the material west.

The emergence of the health conscious consumer in the developed world means
that Unilever can seize the opportunity to market to this segment with its
existing and yet to be launched product range that is specially geared for the
health conscious consumer.

Unilever has a good track record of social and environment responsibility and
with the emergence of the ethical chic consumer who like to buy and consume
products and brands that are responsibly made and sustainably complete.

Threats

The ongoing global economic crisis has severely dented the profitability of many
FMCG companies and Unilever is no exception. With the shrinking of the
disposable incomes of the global consumer, they are buying less and insisting on
more value for their money or more bang for the buck. This means that
Unilever faces the threat of diminished revenues and increasing costs, which is
like a Double Whammy to its top-line, and bottom-line.
Though we had mentioned that Unilever succeeds and scores over P&G in the
CSR or the Corporate Social Responsibility aspect, the increased awareness
among the global consumers has turned the harsh glare into each and every
strategic move that the company makes. Some practices of the company have
been criticized which means that Unilever has to ensure that it sustains and
maintains its focus especially when the spotlight is on it.

As mentioned earlier, Unilever operates in a market segment where local

products and alternatives to its brands proliferate especially in the emerging
markets and hence, it faces a threat from smaller and more nimble local upstarts
who can provide more value for lesser money without the associated costs that
global giants like Unilever incur.

The entry of Asian multinationals into the global arena has upped the ante for
Unilever and raised the stakes in the global game for dominance in the FMCG
market segment. This means that Unilever faces the prospect of having to battle
not only the recessionary blues but also emerging threats from this new age and
new breed of competition from Asian conglomerates that are beginning to spread
their wings internationally.

Conclusion

Unilever has been in the business of consumer fulfillment for many decades and
hence, we are confident that it can tide over the present gloomy conditions in
the FMCG segment. Having said that, we conclude the article with a cautionary
note of not taking the threat from the Asian FMCG majors lightly as they
understand the continent better and at the same time are mastering the
intricacies of the global marketplace.

PESTLE Analysis of Samsung

Introduction

Samsung is a global conglomerate that operates in the White Goods market or

the market for consumer appliances and gadgets. The company that is a South
Korean family owned business has global aspirations and as the recent
expansion into newer markets has shown, Samsung is not content with operating
in some markets in the world but instead, wants to cover as many countries as
possible. Therefore, the focus of this article is on the external environmental
drivers of Samsungs strategy.

Political

In most of the markets where Samsung operates, the political environment is

conducive to its operations and though there are minor irritants in some of the
foreign markets like India, overall Samsung can be said to be operating in
markets where the political factors are benign. However, in recent months, it has
faced significant political headwinds in its home country of South Korea because
of the countrys tensions with North Korea wherein the company has had to take
into account not only the political instability but also the threat of war breaking
out in the Korean Peninsula. Apart from this, Samsung faces political pressures in
many African and Latin American countries where the political environment is
unstable and prone to frequent changes in the governing structures. Of course,
this is not yet a major cause for worry as the company has more or less factored
the political instability into its strategic calculations.

Economic

This dimension is especially critical for Samsung, as the opening up of many

markets in the developing world has meant that the company can expand its
global footprint. However, this dimension is also a worry since the ongoing global
economic crisis has severely dented the purchasing power of consumers in many
developed markets forcing Samsung to seek profitable ventures in the emerging
markets. The key point to note here is that the macroeconomic environment in
which Samsung operates globally is beset with uncertainty and volatility leading
to the company having had to reorient its strategies accordingly. The saving
grace for the company is that it has adjusted rather well to the tapering off of the
consumer disposable incomes in the developed world by expanding into the
emerging and the developing markets. Indeed, this is the reason Samsung has
begun an aggressive push into the emerging markets in the hope of making up
for lost business from the developed world.

Socio-Cultural

Samsung is primarily a South Korean Chaebol or a family owned multinational.

This means that despite its global footprint it still operates from the core as a
Korean company. Therefore, there are several aspects to its global operations
some of which include adapting itself to the local conditions. In other words,
Samsung being a Global company has had to act locally meaning that it has had
to adopt a Glocal strategy in many emerging markets. Apart from this, Samsung
has had to tailor its products to the fast changing consumer preferences in the
various markets where it operates. The key point to note here is that Samsung
operates in a market niche that is strongly influenced by the lifestyle preferences
of consumers and given the fact that socio cultural factors are different in each
country; it has had to reorient itself in each market accordingly.

Technological

Samsung can be considered as being among the worlds leading innovative

companies. This means that the company is at an advantage as far as
harnessing the power of technology and driving innovation for sustainable
business advantage is concerned. This has translated into an obsessive mission
by the company to be ahead of the technological and innovation curve and a
vision to dominate its rivals and competitors as far being the first to reach the
market with its latest products is concerned. however, as we shall discuss later,
this has also resulted in the company cutting corners with its imitation of the
legendary Apples product design and this has brought legal and regulatory
scrutiny and troubles for the company. There is a lesson here for other
technology driven companies from Samsungs experiences and it is that no
matter how fast you are to reach the consumer in this age of Big Bang
Disruption, doing the basics right is still the key to success.

Legal

As mentioned in the last section, Samsung has had to face heavy penalties for its
alleged imitation of the Apples iPad and iPhone and this has led to the company
taking a beating as far as public perceptions and consumer approval of its
strategies are concerned. It remains to be seen as to how the company would
wriggle out of the legal maze that it finds itself in the developed markets
because of the various lawsuits.

Environmental

With the rise of the ethical consumer who wants his or her brands to source and
make the products in a socially and environmentally responsible manner,
Samsung has to be aware of the need to make its products to satiate the ethical
chic consumer. This means that it has to ensure that it does not compromise on
the working conditions or the wages it pays to its labor who are engaged in
making the final product.

Conclusion

The preceding analysis clearly indicates that Samsung has its task cut out for
itself as it navigates the treacherous global consumer market landmine. Indeed,
as the company prepares to expand its global footprint, the stakes could not
have been higher in a recessionary era and an uber competitive technological
market landscape.

An example of reviewing your

marketing capabilities using the
Mckinsey 7S framework

The McKinsey 7S model is a useful framework for reviewing an organisations

marketing capabilities from different viewpoints. The power of the
McKinsey 7S model is that it covers the key organisation capabilities needed to
implement strategy successfully, whether you're reviewing a business ,
marketing or digital strategy.

It also works well in different types of business of all sectors and sizes, although
it works best in medium and large businesses. The beauty of this framework is
that the elements are self-explanatory, although I have outlined some guidance
for applying it later in the post.

The 7S model can be used to:

Review the effectiveness of an organisation in its marketing operations.

Determine how to best realign an organisation to support a new strategic

direction.
Assess the changes needed to support Digital Transformation of an organisation.

What are the 7S framework elements?

In summary, the 7S stand for:

Strategy: The definition of key approaches for an organisation to achieve its

goals.

Structure: The organisation of resources within a company into different

business groups and teams.

Style: The culture of the organisation in terms of leadership and interactions

between staff and other stakeholders.

Staff: The type of employees, remuneration packages and how they are
attracted and retained.

Skills: Capabilities to complete different activities.

Systems: Business processes and the technical platforms used to support

operations.

Shared Values: Summarised in a vision and or mission, this is how the

organisation defines its raison d'etre.

How can I use this 7S framework?

You can review each of the 7S to assess how the capabilities of an organisation
can be improved as the starting point of creating an action plan.

An example of applying the 7S framework to a marketing review

This example considers some of the issues related to introducing digital

technology into an organisation. A theme familiar to Smart Insights readers.

1. Strategy

The contribution of digital business in influencing and supporting organisations

strategy. The key issues are:

Gaining appropriate budgets and demonstrating, delivering value and ROI from
budgets.

Annual planning approach.

Techniques for using digital business to impact organization strategy.

Techniques for aligning digital business strategy with organisational and

marketing strategy.

2. Structure
The modification of organisational structure to support digital business. The key
issues are:

Integration of digital marketing or e-commerce teams with other management,

marketing (corporate communications, brand marketing, direct marketing) and IT
staff.

Use of cross-functional teams and steering groups.

Insourcing vs outsourcing.

3. Systems

The development of specific processes, procedures or information systems to

support digital business. The key issues are:

Campaign planning approach-integration.

Managing or sharing customer information.

Managing customer experience, service and content quality.

Unified reporting of digital marketing effectiveness and

In-house vs external best-of-breed vs external integrated technology solutions.

4. Staff

The breakdown of staff in terms of their background, age and sex and
characteristics such as IT vs marketing, use of contractors/ consultants. The key
issues are:

Insourcing vs outsourcing.

Achieving senior management buy-in/involvement with digital marketing.

Staff recruitment and retention, and virtual working.

Staff development and training.

5. Style

Includes both the way in which key managers behave in achieving the
organisations goals and the cultural style of the organisation as a whole. The key
issues are:

Defining a long-term vision for transformation.

Relates to role of the digital marketing or e-commerce teams in influencing

strategy is it dynamic and influential or a service which is conservative and
looking for a voice?.

6. Skills
Distinctive capabilities of key staff, but can be interpreted as specific skill-sets of
team members. The key issues are: staff skills in specific areas such as supplier
selection, project management, content management and specific e-marketing
media channels.

7. Shared values

The guiding concepts of the digital business or e-commerce organization which

are also part of shared values and culture. The key issues are: improving the
perception of the importance and effectiveness of digital business amongst
senior managers and staff it works with (marketing generalists and IT).

Remember to manage the hard and soft factors separately:

Hard factors: Strategy, Structure and Systems.

Soft factors: Style, Staff, Skills, Systems and Shared values/superordinate

goals.