Definition of a Market Share Matrix
A market share matrix is
strategic planning tool designed to aid fundamental decisions and actions that
shape and guide what a business organization is, what it does, and why it does
it. The objective of this strategic planning tool is to develop a map by which
to manage an organization’s positioning. An example of market share matrix is
shown in the diagram below.
strategic planning tool designed to aid fundamental decisions and actions that
shape and guide what a business organization is, what it does, and why it does
it. The objective of this strategic planning tool is to develop a map by which
to manage an organization’s positioning. An example of market share matrix is
shown in the diagram below.
A Star: A star
product / service or unit is that which has a high market share position in a
high growth market. It grows rapidly and because of this it needs enough
injection of cash to maintain its leadership position in the market. Star also
generates large amounts of cash but which it also consumes to maintain its
position. That is the cash flows of the star are in balance state. But the star
still offers the best opportunity for expansion as it enjoys high profits and
growth opportunities. For a company like Nigeria Breweries Limited one might
say its star product is Maltina.
product / service or unit is that which has a high market share position in a
high growth market. It grows rapidly and because of this it needs enough
injection of cash to maintain its leadership position in the market. Star also
generates large amounts of cash but which it also consumes to maintain its
position. That is the cash flows of the star are in balance state. But the star
still offers the best opportunity for expansion as it enjoys high profits and
growth opportunities. For a company like Nigeria Breweries Limited one might
say its star product is Maltina.
Cash Cow: Cash cow product, service or unit is one with high
market share position in a low growth markets. Because of its high market share
it operational cost is low and high profit and cash flow generation.
Reinvestment cost is low due to the slow growth of the market. Cash cows
generate the highest levels of cash which are then used by the company to
finance overheads, dividends and new investment for the company as a whole.
Considering cash flow point of view cash cows are the most important products /
services / units in any organization and must be accorded full attention at all
times. The cash cow for the Nigeria Breweries Limited is STAR large beer.
market share position in a low growth markets. Because of its high market share
it operational cost is low and high profit and cash flow generation.
Reinvestment cost is low due to the slow growth of the market. Cash cows
generate the highest levels of cash which are then used by the company to
finance overheads, dividends and new investment for the company as a whole.
Considering cash flow point of view cash cows are the most important products /
services / units in any organization and must be accorded full attention at all
times. The cash cow for the Nigeria Breweries Limited is STAR large beer.
The
Question Mark: This is a product /
service / unit that enjoy very low share of the market with a high growth. It
is the worst from the cash flow point of view because of its very high cash
requirements to enable it gain market share. It only generates very little
cash. However, since its growth rate is high, it is easy to gain market share
that will convert it to a star and eventually into a cash cow. Shandy and Rex
large beer are still question marks for Nigeria Breweries Limited
Question Mark: This is a product /
service / unit that enjoy very low share of the market with a high growth. It
is the worst from the cash flow point of view because of its very high cash
requirements to enable it gain market share. It only generates very little
cash. However, since its growth rate is high, it is easy to gain market share
that will convert it to a star and eventually into a cash cow. Shandy and Rex
large beer are still question marks for Nigeria Breweries Limited
A Dog: A dog has no good market share nor is it in a growing
market. It has a very meagre, poor and insignificant profit contribution if at
all there is any (its profit contribution, is therefore very poor indeed), it
may even need cash injection to survive considering its weak competitive
position and probably intending situation in the market. All dogs should be
eliminated either through liquidation, discontinuance or divestment.
market. It has a very meagre, poor and insignificant profit contribution if at
all there is any (its profit contribution, is therefore very poor indeed), it
may even need cash injection to survive considering its weak competitive
position and probably intending situation in the market. All dogs should be
eliminated either through liquidation, discontinuance or divestment.
A company that must succeed
should be able to manage its portfolio of products or strategic business units
in order to balance cash flows. Stars generate enough cash to sustain them
selves. Cash cows generate cash flows to be milked. Question marks suck up cash
from cash cows. Dogs are cash traps that should be dispensed with if they are
eating too much and contributing nothing.
should be able to manage its portfolio of products or strategic business units
in order to balance cash flows. Stars generate enough cash to sustain them
selves. Cash cows generate cash flows to be milked. Question marks suck up cash
from cash cows. Dogs are cash traps that should be dispensed with if they are
eating too much and contributing nothing.
In all of this, the field
theory should be applied. The field theory has it that, a company might decide
on its economies of scope. It must decide on what product line area it wants to
compete in and what skills will be needed to successfully compete in that area.
Four variables are to be considered, they are:
theory should be applied. The field theory has it that, a company might decide
on its economies of scope. It must decide on what product line area it wants to
compete in and what skills will be needed to successfully compete in that area.
Four variables are to be considered, they are:
1. products to be offered
2. the markets to be serve
3. the customer to satisfy,
and
and
4. The value to be added.
The
Importance of Market Share Matrix and How it Helps Business Managers to Achieve
Organizational Goals
Importance of Market Share Matrix and How it Helps Business Managers to Achieve
Organizational Goals
The market share matrix as
a strategic planning tool has made a significant contribution to strategic
management and continues to be an important strategic tool used by companies
today. The matrix provides a composite picture of the strategic position of
each separate business within a company so that the management can determine
the strengths and the needs of all sectors of the firm. The development of the
matrix requires the assessment of a business portfolio, which includes an
organization’s autonomous divisions (activities, or profit centers).
a strategic planning tool has made a significant contribution to strategic
management and continues to be an important strategic tool used by companies
today. The matrix provides a composite picture of the strategic position of
each separate business within a company so that the management can determine
the strengths and the needs of all sectors of the firm. The development of the
matrix requires the assessment of a business portfolio, which includes an
organization’s autonomous divisions (activities, or profit centers).
The market share matrix
presents graphically the differences among these business units in terms of
relative market share and industry growth rate. The vertical axis represents in
a linear scale the growth rate of the market in which the business exists (as
shown in the diagram above). This is generally viewed as the expected growth
rate for the next five years of the market in which a particular business
competes. The values of the vertical axis are the relevant market growth rates
(i.e., 5 percent, 10 percent, 15 percent, 20 percent, etc.). Usually a 10
percent cut-off level is selected in order to distinguish high from low market
growth rate (a 10 percent value corresponds to doubling current experience in
the next five to seven years).
presents graphically the differences among these business units in terms of
relative market share and industry growth rate. The vertical axis represents in
a linear scale the growth rate of the market in which the business exists (as
shown in the diagram above). This is generally viewed as the expected growth
rate for the next five years of the market in which a particular business
competes. The values of the vertical axis are the relevant market growth rates
(i.e., 5 percent, 10 percent, 15 percent, 20 percent, etc.). Usually a 10
percent cut-off level is selected in order to distinguish high from low market
growth rate (a 10 percent value corresponds to doubling current experience in
the next five to seven years).
The horizontal axis
represents in a logarithmic scale the market share of a business within a firm
relative to the market share of the largest competitor in the market. For
example, Company A may have a 10 percent market share and Company B, the
leading competitor, holds 40 percent of the market. Company A’s market share
relative to Company B’s market share is 25 percent, or .25×. If Company A has a
40 percent share and Company B has a 10 percent share, Company A’s market share
is 400 percent, or 4.0×.
represents in a logarithmic scale the market share of a business within a firm
relative to the market share of the largest competitor in the market. For
example, Company A may have a 10 percent market share and Company B, the
leading competitor, holds 40 percent of the market. Company A’s market share
relative to Company B’s market share is 25 percent, or .25×. If Company A has a
40 percent share and Company B has a 10 percent share, Company A’s market share
is 400 percent, or 4.0×.
Relative market share is an
indicator of organizations competitive position within the industry, and
underlies the concept of experience curve. Thus, business organizations with
high relative market share tend to have a cost leadership position.
indicator of organizations competitive position within the industry, and
underlies the concept of experience curve. Thus, business organizations with
high relative market share tend to have a cost leadership position.
Each of a company’s
products or business units is plotted on the matrix and classified as one of
four types: question marks, stars, cash cows, and dogs. Question marks, located
in the upper-right quadrant, have low relative market share in a high-growth
market. These businesses are appropriately called question marks because it is
often uncertain what will happen to them.
products or business units is plotted on the matrix and classified as one of
four types: question marks, stars, cash cows, and dogs. Question marks, located
in the upper-right quadrant, have low relative market share in a high-growth
market. These businesses are appropriately called question marks because it is
often uncertain what will happen to them.
Careful examination by
management can help determine how many resources (if any) should be invested in
these businesses. If significant change can increase relative market share for
a question mark, it can become a star and eventually gain cash-cow status. If
relative market share cannot be increased, the question mark becomes a dog.
management can help determine how many resources (if any) should be invested in
these businesses. If significant change can increase relative market share for
a question mark, it can become a star and eventually gain cash-cow status. If
relative market share cannot be increased, the question mark becomes a dog.
The upper-left quadrant
contains stars, businesses with high relative market share in high-growth
markets. These businesses are very important to the company because they
generate a high level of sales and are quite profitable. However, because they
are in a high growth market that is very attractive to competitors, they
require a lot of resources and investments to maintain a high market share.
Often the cash generated by stars must be reinvested in the products in order
to maintain market share.
contains stars, businesses with high relative market share in high-growth
markets. These businesses are very important to the company because they
generate a high level of sales and are quite profitable. However, because they
are in a high growth market that is very attractive to competitors, they
require a lot of resources and investments to maintain a high market share.
Often the cash generated by stars must be reinvested in the products in order
to maintain market share.
When the market growth
slows down, stars can take different paths, depending on their abilities to
hold (or gain) market share or to lose market share. If a star holds or gains
market share when the growth rate slows, stars become more valuable over time,
or cash cows. However, if a star loses market share, it becomes a dog and has
significantly less value (if any) to the company.
slows down, stars can take different paths, depending on their abilities to
hold (or gain) market share or to lose market share. If a star holds or gains
market share when the growth rate slows, stars become more valuable over time,
or cash cows. However, if a star loses market share, it becomes a dog and has
significantly less value (if any) to the company.
The lower-left quadrant
contains businesses that have high relative market share in low-growth markets.
These businesses are called cash cows and are highly profitable leaders in
their industries. The funds received from cash cows are often used to help
other businesses within the company, to allow the company to purchase other
businesses, or to return dividends to stockholders.
contains businesses that have high relative market share in low-growth markets.
These businesses are called cash cows and are highly profitable leaders in
their industries. The funds received from cash cows are often used to help
other businesses within the company, to allow the company to purchase other
businesses, or to return dividends to stockholders.
Dogs generate low relative
market share in a low-growth market. They generate little cash and frequently
result in losses. Management should carefully consider their reasons for
maintaining dogs. If there is a loyal consumer group to which these businesses
appeal, and if the businesses yield relatively consistent cash that can cover
their expenses, management may choose to continue their existence. However, if
a dog consumes more resources than it’s worth, it will likely be deleted or
divested.
market share in a low-growth market. They generate little cash and frequently
result in losses. Management should carefully consider their reasons for
maintaining dogs. If there is a loyal consumer group to which these businesses
appeal, and if the businesses yield relatively consistent cash that can cover
their expenses, management may choose to continue their existence. However, if
a dog consumes more resources than it’s worth, it will likely be deleted or
divested.
Strategic business units,
which are often used to describe the products grouping or activities, are represented
with a circle in the market share matrix. The size of the circle indicates the
relative significance of each business unit to the organization in terms of
revenue generated (or assets used).
which are often used to describe the products grouping or activities, are represented
with a circle in the market share matrix. The size of the circle indicates the
relative significance of each business unit to the organization in terms of
revenue generated (or assets used).
One big advantage of the
matrix is its ability to provide a comprehensive snapshot of the positions of a
company’s various business concerns. Furthermore, an important benefit of the
market share matrix is that is draws attention to the cash flow, investment
characteristics, and needs of an organization’s business units, helping
organizations to maintain a balanced portfolio.
matrix is its ability to provide a comprehensive snapshot of the positions of a
company’s various business concerns. Furthermore, an important benefit of the
market share matrix is that is draws attention to the cash flow, investment
characteristics, and needs of an organization’s business units, helping
organizations to maintain a balanced portfolio.
Unfortunately, the market
share matrix, like all analytical techniques, also has some important limitations.
It has been criticized for being too simplistic in its use of growth rate and
market share. Market growth rate is only one variable in market attractiveness
and market share is only one variable in a business’s competitive position.
Furthermore, viewing every business as a star, cash flow, dog, or question mark
is not always realistic. A four-cell matrix is too simple because strategic
competitive positions are more complicated than “high” and
“low”.
share matrix, like all analytical techniques, also has some important limitations.
It has been criticized for being too simplistic in its use of growth rate and
market share. Market growth rate is only one variable in market attractiveness
and market share is only one variable in a business’s competitive position.
Furthermore, viewing every business as a star, cash flow, dog, or question mark
is not always realistic. A four-cell matrix is too simple because strategic
competitive positions are more complicated than “high” and
“low”.
Another disadvantage of
using the market share matrix is that it is often difficult for a company to
sufficiently divide its business units or product lines. Consequently, it is
difficult to determine market share for the various units of concern.
using the market share matrix is that it is often difficult for a company to
sufficiently divide its business units or product lines. Consequently, it is
difficult to determine market share for the various units of concern.
REFERENCES
Boston Consulting Group (2009). Growth-Share Matrix.
Retrieved from http://www.business-tools-templates.com on 10 June, 2015
Retrieved from http://www.business-tools-templates.com on 10 June, 2015
Costin, H. (2008). Readings in Strategy and
Strategic Planning. Fort Worth, TX: The Dryden Press.
Strategic Planning. Fort Worth, TX: The Dryden Press.
David, R. F. (2009). Strategic Management: Concepts
and Cases. Upper Saddle River, NJ: Prentice Hall.
and Cases. Upper Saddle River, NJ: Prentice Hall.
Houlden, B. (2006). Understanding Company Strategy:
An Introduction to Analysis and Implementation. Cambridge, MA: Blackwell
Publishers, Inc.
An Introduction to Analysis and Implementation. Cambridge, MA: Blackwell
Publishers, Inc.
Hunger, J. D. and Thomas L. W. (2007). Essentials
of Strategic Management. Reading, MA: Addison Wesley.
of Strategic Management. Reading, MA: Addison Wesley.
Porter, M.E. (2010). Competitive Strategy. New
York, NY: The Free Press.
York, NY: The Free Press.
Stahl, J. and David W. (1992). Strategic Management
for Decision Making. Massachusetts: PWS-KENT Publishing.
for Decision Making. Massachusetts: PWS-KENT Publishing.
Umale, A.A. (2014). Basic Entrepreneurship: Theory,
Management and Practice. Ughelli: Masco Graphics.
Management and Practice. Ughelli: Masco Graphics.
Wheelen, L. and David J. (1998). Strategic
Management and Business Policy: Entering 21st Century Global Society. Reading,
MA: Addison Wesley.
Management and Business Policy: Entering 21st Century Global Society. Reading,
MA: Addison Wesley.
