Online retailers, especially those with a variety of product or product lines, daily make decisions about which products to market, and which items do not get advertisements or marketing investments. Unfortunately, many smaller companies use”gut feelings” or easy sell-through rates to produce advertising investment decisions, possibly missing out of on leading chances.
Bruce Doolin Henderson, the one time president and CEO of BCG, developed a two-dimensional grid to help companies determine how to allocate funds to different product lines. In its original context, it’s geared toward producers, but marketers have embraced the BCG as a means to consider allocations not only for goods manufactured but also for goods retailed.
What the BCG Matrix Steps
The BCG Matrix looks at two factors, if you are, aimed at helping decision makers understand how a producer’s or a retailer’s particular position with a product or product class fits into the industry.
The BCG Matrix looks at two factors: market share and market development.
The BCG considers market share, that’s the percentage of the total market the company, or in the event of ecommerce the merchant, controls.
Small business owners or entrepreneurs in a rather small company may feel as they don’t really understand what their store’s market share is or even how to find it, but this percentage can be found with a small amount of research.
Consider looking, for instance, at the filings for publicly traded retailers or producers that sell or create the item in question. These companies often provide market share information to analysts and investors, and smaller businesses can use a bigger competitor’s market share to compute its own.
The calculation may go something like this. If Amazon states it has a 50 percent market share of internet envelope sales, and it reports $10 million in online envelope sales, one can estimate that the total online bookstore marketplace is roughly $20 million. If your company sells $1 million worth of envelopes online in a year, you have about a 5-percent market share.
You may also search for reports from government agencies or books too. Various government agencies post market data as do business publications. A Google or Bing search can find data that almost any merchant can use to find market share.
Finally, there are solutions which will help identify market size. For instance, a merchant could use Terapeak’s tools to learn how big the market for a specific product on Ebay.
The important thing here is that the BCG Matrix supposes companies with a relatively substantial market share will also be relatively profitable.
The next dimension or factor from the BCG Matrix is market development. This is the percent that the marketplace is expanding over a set time interval. When markets — or the requirement for a product or product class — are growing rapidly it’s generally a symptom of opportunity.
Low expansion markets or product lines generally have more or increased competition. The pie, if you will, is a fixed size and everybody has to struggle to find a piece. But higher growth markets often have relatively low competition and comparatively more opportunity. The pie itself is becoming larger and only being in the market suggests you are going to find a bigger piece eventually.
Ecommerce owners and owners can look to printed reports and business analysis to determine market growth rates to be used in the BCG Matrix. Additionally, there are third-party tools that monitor sales rates and average selling prices for markets. This may again be used to gauge market development.
Plotting Products or Product Categories
For each product line an online sellers shares, that seller should attempt to spot, at least a year, market share and market growth and plot each item line on the BCG Matrix.
For instance, if a merchant has the follow products these items could be plotted on the BCG matrix in relative positions.
Product A. 35-percent share, 10-percent expansion
Product B. 5-percent share, 15-percent expansion
Product C. 30-percent share, 65-percent expansion
Product D. 2-percent share, 95-percent expansion
The procedure for plotting the products will set them in a quadrant. Item A would be in the lower left quadrant with reduced growth but relatively substantial market share. Item B are in the lower right quadrant with low growth and low discuss. Item C are in the top left quadrant with relatively substantial market share and growth. In the end, Merchandise D will be in the upper right quadrant with low market share, but higher growth.
Each quadrant on the BCG Matrix represents a specific type of business situation and a particular strategy which should impact how a company invests marketing funds.
In the BCG Matrix the lower right quadrant is known as the”Dogs.” It refers to a product or product category for which a firm has reduced market share and is constrained with reduced expansion.
Products in this quadrant should, normally, either get no support or be divested — i.e., closed out.
The rationale is that competing here will have a substantial investment in money and time since the company has reduced market share and has to take sales from competitors who might be better positioned on the market. Consider the folks who market mass-market products on Amazon or Ebay, wherein the sole way to compete is to keep slashing prices, decreasing margin, and earning less money for the identical amount of effort.
The Money Cows
Products from the lower left quadrant are known as”Cash Cows.” In such cases the company has relatively good share of this marketplace, but is confronted with low expansion. These are products which are money makes, but they won’t necessarily spend the seller further, increasing earnings or earnings over time.
Here the plan is to harvest from such products to spend elsewhere. Take advantage of succeeding, but do not rest.
The Question Marks
With high growth and reduced market share, products at the upper right are known as”Question Marks.” Businesses simply don’t understand what they represent regarding possible market share or growing profits.
Notwithstanding the unknowns, you need to construct promotions for all these products, investing in advertising and marketing.
These products have the best potential for the business because there’s an chance to capture share and to grow with the market. Just know that not every”Question Mark” product will succeed.
A organization’s”Star” products live in the top left quadrant with high market share and higher growth. Due to the business’s relatively strong market share the company has a fantastic competitive position. The high growth also suggests that there’s the chance to continue to improve revenue and profits.
For”Star” goods, hold on to what you have or in some case attempt to continue to grow, but this is truly an area of moderate marketing and promotion investment.
When you use the BCG Matrix to make advertising investment choices, the goal must be to make star products and hold on to them. Thus, you’re likely to devote some advertising and marketing to holding on to celebrities and the remainder to star creation.
The BCG Matrix is made up of four quadrants, to make marketing decisions.
Cash from dogs and cash cows ought to be spent in question marks with the intent of transforming a few of those question marks in to celebrities. In the case of dogs, this might mean not investing in any way. For cash cows, you may either hold or crop.