Limitations of the BCG Model in Marketing

Categories: EconomyMarketing

The BCG model is criticised for having a number of limitations (Kotler 2003; McDonald 2003):

  • There are other reasons other than relative market share and market growth that could influence the allocation of resources to a product or SBU: reasons such as the need for strong brand name and product positioning could compel resource allocation to an SBU or product (Drummond & Ensor 2004).
  • What is more, the model rests on net cash consumption or generation as the fundamental portfolio balancing criterion. That is appropriate only in a capital constrained environment.

    In modern economies, with relatively frictionless capital flows, this is not the appropriate metric to apply – rather, risk-adjusted discounted cash flows should be used (ManyWorlds 2005).

  • Also, the matrix assumes products/business units are independent of each other, and independent of assets outside of the business. In other words, there is no provision for synergy among products/business units. This is rarely realistic.
  • The relationship between cash flow and market share may be weak due to a number of factors including (Cipher 2006): competitors may have access to lower cost materials unrelated to their relative share position; low market share producers may be on steeper experience curves due to superior production technology; and strategic factors other than relative market share may affect profit margins.
  • In addition, the growth-share matrix is based on the assumption that high rates of growth use large cash resources and that maturity of the life cycle brings about the expected profit returns.
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    This may be incorrect due to various reasons (Cipher 2006): capital intensity may be low and the business/product could be grown without major cash outlay; high entry barriers may exist so margins may be sustainable and big enough to produce a positive cash flow and a growth at the same time; and industry overcapacity and price competition may depress prices in maturity.

  • Furthermore, market growth is not the only factor or necessarily the most important factor when assessing the attractiveness of a market.
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    A fast growing market is not necessarily an attractive one. Growth markets attract new entrants and if capacity exceeds demand then the market may become a low margin one and therefore unattractive. A high growth market may lack size and stability.

Given the aforementioned weaknesses, the BCG Growth-Share matrix must be used with care; nonetheless, it is a best-known business portfolio evaluation model (Kotler 2003).

Updated: Jul 06, 2022
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Limitations of the BCG Model in Marketing. (2016, Mar 21). Retrieved from https://studymoose.com/limitations-of-the-bcg-model-in-marketing-essay

Limitations of the BCG Model in Marketing essay
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