The Business Book

(Joyce) #1

255


Nescafé coffee is Nestlé’s largest
brand, a cash cow valued at $17.4 billion.
Growing since World War II, the product
generated sales of $10 billion in 2012.

products with limited potential.
The coffee brand Nescafé has
continued to perform well since its
1938 launch, thanks in part to the
company’s strategy of investing in
and expanding the range. At
different times in the company’s
history it has been a cow and a star
product. Instant coffee is now a
reliable cow, funding expansion in
other areas. However, the company’s
organic food range has suffered low
market share in a growing market,
making it a question mark. Nestlé’s
large share of the food seasonings
sector, a low-growth area, could be
seen as a cow.
Through a series of acquisitions,
Nestlé has become the leading
pet-food maker in a globally high-


growth market, elevating food
products for real dogs and cats into
star products.

Portfolio management
Other models have evolved from the
BCG. In the 1970s, General Electric
consulted with business advisors
McKinsey & Company to develop
an alternative known as the GE–
McKinsey matrix. This nine-cell
model enables a more complex
analysis of the product portfolio,
and allows companies to plot
market attractiveness and

SUCCESSFUL SELLING


competitive strength. In 1982,
H. C. Barksdale and C. E. Harris
proposed two new product
classifications to add to the original
BCG matrix: “warhorses” and
“dodos.” Warhorses lead the market
but are threatened by a negative
market growth, so a business must
gauge whether to ride out the storm
in the belief that it will pick up, or
work the horse as long as possible
with minimal outlay. Dodos are
about to become extinct, with low
share in a negative growth market.

Using the matrices
A 1981 study by management
professors Richard Bettis and W. K.
Hall, and supported by P. Haspeslagh
in 1982, found the BCG matrix was
used by 45 percent of companies
ranked in the Fortune 500.
However, the BCG matrix has
attracted criticism for being overly
simplistic and basing judgements on
cash flow rather than return on
investment. A study by Colorado
State University in 1992 discovered
that companies using the BCG
matrix and similar models had lower
shareholder returns than companies
not using such models. Despite its
detractors, the BCG provides an easy
way to make sense of the product
portfolio and the strategies involved
in managing it successfully. ■

Barksdale and Harris
created a matrix that added
two new classifications
known as warhorses and
dodos, both of which were
expected to decline.

Although they lead the
market, warhorses are
threatened by the prospect
of negative growth.

On their way to
extinction, dodos have
a low share of a market
that has an outlook of
negative growth.
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