Understanding Market Strategies and BCG Matrix Analysis
Introduction
In this blog, we will delve into the concept of market strategies, including market penetration, product development, and market development strategies. Additionally, we will explore the BCG Matrix and its application in formulating marketing strategies.
Understanding Market Strategies and the BCG Matrix
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The Ansoff matrix concept categorizes different activities in each quadrant to create market strategies.
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Market penetration strategy refers to activities aimed at the current market and current product class, while product development strategy involves introducing new products in the current market.
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Market development strategy involves taking current products to new markets, such as targeting new geographical locations or different types of buyers.
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For example, taking personal computers developed for professional use and introducing them to the young teenager market for games and entertainment constitutes a current product in a new market.
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Various actions, such as new targeting, value proposition, packaging, and additional features, are part of the market development strategy.
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The Boston Consulting Group (BCG) introduced a matrix based on relative market share and market growth rate, offering insights for formulating marketing strategies.
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In situations of high relative market share and low market growth rate, the market may be saturating, leading to consolidation of weaker competitors or mergers among smaller players.
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An example is Sony and Ericsson merging to compete with dominant players like Nokia and Motorola in the mobile handset market.
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Additionally, a high relative market share and low market growth rate may result in a ‘cash cow’ business, generating significant cash flow despite minimal growth.
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On the other hand, a low relative market share and low industry growth rate make a business unattractive, often requiring efforts to retain position in the market.
Introduction to iPad and the Growing Tablet Market
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The iPad and other tablets have become popular handheld devices with multiple functions, serving as communication devices, internet appliances, entertainment devices, and personal digital assistants.
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The iPad has created a compelling value bundle, although only a small percentage of PC or laptop owners currently own a tablet.
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There is a possibility that tablets like the iPad might completely replace traditional notebooks, netbooks, and ultrabooks, indicating a rapidly growing market, especially in emerging countries like India and China.
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Apple holds a strong market share in the tablet market, with Samsung being the closest competitor.
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The rapid growth potential in emerging markets and the constantly evolving technology landscape create uncertainty for low market share businesses, despite the high market growth rate.
Industry Attractiveness and Competitive Positioning
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The growth of an industry can be disrupted by new developments, despite a high market growth rate.
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The relative market share may not accurately reflect a company’s competitive strength, as seen in the case of Nokia’s high share in India versus its declining share in the United States and Europe.
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The BCG metrics, despite some criticisms, remains an important framework for correlating corporate and marketing strategy.
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The industry attractiveness and business competitive position metrics provide a higher-level concept than market share, taking into account factors such as technological position, customer loyalty, patents, and brand equity.
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The industry attractiveness considers not only the current size but also the growth rate, competitive intensity, price level, profitability, and their connection to the industry’s life cycle position.
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Government regulations can significantly impact industry attractiveness, making previously lucrative industries less attractive over time.
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Using high, medium, and low levels for both industry attractiveness and business competitive position, a three by three matrix can be created, providing insights for building product portfolios and marketing strategies.
Strategic Marketing Planning Analysis
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In the competitive market, Nokia faces stiff competition from Apple and Samsung, especially in markets like China and India.
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For sustainable growth, Nokia should selectively invest in high-growth markets like India while maintaining its position in its home market and certain parts of Europe.
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The strategy for Nokia involves three segments: invest and grow, selectively grow or maintain, and divest and harvest.
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Invest and grow businesses require high promotion investment and distribution expansion, while divest and harvest businesses focus on maximizing product availability in existing markets.
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Net Present Value (NPV) analysis helps determine the cash flow and profitability of different marketing strategies, guiding decision-making based on the company’s cash position and growth objectives.
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Economic Value Added (EVA) analysis compares the return on invested capital with the risk-free return from alternative investments, ensuring that marketing efforts generate sufficient returns.
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Different types of businesses may require different planning approaches, with some focusing on longer-term growth and others on faster payback periods.
Evaluation of Marketing Strategies
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The evaluation of marketing strategies involves calculating economic value added (EVA) by considering the capital employed and the average cost of capital.
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If the return is less than the cost of capital, the strategy results in negative economic value added and is considered value eroding.
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To make strategic decisions, it’s crucial to consider the net present value (NPV) and EVA, both of which require accurate forecasts and objective judgment.
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Comparative evaluation using NPV, EVA, and customer equity derived from customer lifetime value helps in choosing among strategic alternatives.
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Marketing’s role within corporate strategy is to develop and implement strategies for different product-market combinations by assessing each market’s potential and making informed decisions.
Conclusion
In conclusion, understanding market strategies, such as market penetration, product development, and market development strategies, along with the application of the BCG Matrix, is crucial for businesses to plan and implement effective marketing strategies. By evaluating market dynamics and competitive positions, businesses can make informed decisions to sustain and grow in their respective industries.