Page 37 - Marketing the Basics 2nd

Marketing as a corporate Function 29
the market and their nearest competitor only controlled 5 per cent, the SBU would have a relative market share of 5x.
The graph is divided into four cells, each representing a type of business. SBUs with high-market share and high growth are called ‘stars’; the ‘cash cows’ are SBUs with high-market share but low growth; SBUs with low-market share and low growth are called ‘dogs’. Finally, SBUs with high growth rates but low-market share are called ‘question marks’.
Using the BCG model, managers quickly assess which SBUs are growing rapidly (stars), which SBUs could be milked to finance the growth (cash cows) and which SBUs to divest (dogs). Question marks have the potential of being turned into stars, but they require development through increased funding and resources. With this model, managers can create a pecking order as to who receives funding first.
Besides being used as a tool to allocate funding to SBUs, compa- nies use the model to aid product-line decisions. Cell phone manufacturer Ericsson for example, plots the market performance of their 2G and 3G product-lines. Over time, the 2G phones moved from being a star to a cash cow and eventually a dog. Doing this allows them to change funding levels by better timing critical decisions. However, when analyzing at a product level, the manager must not make the mistake of assuming all markets are alike. As we said earlier, products are technology driven, markets are time driven. If a product is a dog in one market, it could still be a cash cow in another.
Models such as the BCG approach have their fair share of critics who contend that using such an approach tempts managers to believe that using a simple and elegant model solves all of the problems related to resource allocation. Furthermore, it assumes SBUs are completely independent entities. In practice that is rarely the case. SBUs share resources, capabilities, personnel and facilities. Divesting dogs that offer synergies introduces the danger of adversely affecting well-performing SBUs. Furthermore, the results of the model are sensitive to the assigned weights and ratings. What market you compete in is not often as clear-cut as one might think. Coke is doing well against Pepsi for share of the market but compared to water (another key competitor) it has a