4.6 Strategy Tools
Learning Objectives
- Learn how to use
- The Boston Consulting Group Matrix
- A Perceptual Map
We already looked at one important tool used in developing strategies, the SWOT analysis. There are other tools that can be used to give a strategic picture and ideas for strategies.
Boston Consulting Group Matrix
A “matrix’ is a fancy term for a table. The Boston Consulting Group, BCG, developed a way to portray the positioning of a firm’s products that lends itself to developing strategies. The BCG Matrix has two axes. The X axis is relative market share. The term “relative” is important because it is not the absolute market share but what it is like compared to others. A 15% market share may be low if the competition has 40%. On the other hand, a market share of 15% can be high if the competition has only 3% market share. The Y axis depicts market growth, which can be either high or low. It is how fast the target market is growing.
Yes, even the Germans use the BCG Matrix. Author Wiska Bodo, License GNU Free Documentation License
A firm’s product is placed in one of the four quadrants along with the products of competitors. A firm’s product which is a Star might be one where a company wants to invest to hold it’s market position. A Question Mark means that a product could become a Star or a Dog. The firm should decide how much to invest in that product. A Cash Cow is a good product that is generating profits for a business. Finally, a Dog is a losing product. The firm may decide to exit that business and use the capital for other projects.
Perceptual Map
A perceptual map is another way of looking at a firm’s competitive position. It also requires two axes and the strategist is free define what they are. A firm’s product and the competition are then placed in the map.
Author Letswrite1337, License CC-BY-SA-4.0
When a business is considering a strategy, it might look for ‘holes’ in the perceptual map where it can position it’s products and differentiate itself from the competition. A word of caution, when making a perceptual map, do not use quality and price as the axes. If you do, what you will probably see is the firms show up on a diagonal line. That’s because typically price and quality are correlated.
