The Vertical Axis
The market growth rate is plotted on the vertical axis; the relative market share on the horizontal axis and the size of the SBU/division/product is plotted as the area within the circles of the matrix.
The market growth rate in volume is used as an alternative for the market attractiveness and provides a measure of attractiveness for the total industry without regard for the position of a certain firm/SBU etc.
It is calculated as follows:
Total Market 2000 – Total Market 1999
Total Market 1999
Market Growth = X 100
Rate 2000
This axis uses a simple percentage scale.
The mid-point on this axis is dependant on the industry or segments growth or decline. (if all the business/products etc. belong to one industry) If they are not in the same industry then the growth of the gross national product is usually used or a weighted average of all of the industries can also be used. The original classical matrix used a mid point of 10%, which was seen as the company investment threshold cut-off rate.
If a company is analysing its different business units then the overall company growth can be used as the mid point on the vertical axis.
Businesses above this level are in the embryonic/introductory stage or growth stage of their life cycle while those falling below this level are in the maturity or aging/decline stage of their life cycle.
The horizontal axis of this plot measures the relative market share of the business unit/product etc. i.e. this is a comparative market share measurement between the unit being analysed and the competitors.
The Horizontal Axis
Business Sales 2000
Leading Competitor Sales 2000
Relative Market Share 2000 =
This axis illustrates the ratio of sales for a business against those of its most important competitor. A relative market share of 2 indicates that the business’ sales are two times larger than the sales of its most important competitor whilst a relative share of 0.5 shows sales that are only half that of the most important competitor.
The relative market share of each unit to be analysed is plotted in the growth share matrix in a semi-log scale. The reason for doing this is that market share is linked to accumulated volume and this in turn is related to the experience curve.
The decline of costs according to the experience curve is plotted as a straight line in a semi-log scale. A higher market share implies higher accumulated volumes, which in turn implies lower costs and higher profitability.
The midpoint or cut off point on this matrix was determined to be 1.0 by the Boston Consulting Group. The market leader, which is a business/product with a relative market share greater than one, has a significant strength. Some companies use a cut off point of 1.5 because a positioning above this determines that a business/product can truly dominate an industry.
A third parameter is used to illustrate the contribution of the business whether it is a division or product, to the overall company.
On the BCG matrix the size of the circles represents the turnover or size of the business/product. Sales figures are usually used as they allow easy comparisons with competitors. Asset values can also be used.
This technique facilitates the visual comparison of business/products with a range of volumes