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HCS 539 Lecture Notes BCG Matrix

LECTURE NOTES
Course

Marketing For Health Care (HCS 539)

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HCS 539 LECTURE NOTES BCG MATRIX

BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic position of the business brand portfolio and it's potential. The broad nature of the BCG matrix often makes it too limiting for significant strategy formulation. Yet, in health care organizations, it can serve as a valuable conceptual framework to stimulate strategy discussions.

The BCG framework is a useful tool for focusing management attention on broad marketplace considerations and for getting participants to discuss the issues of market growth and the requirements for market dominance in a particular clinical setting. The BCG matrix is also a useful tool for helping a medical organization assess its internal strengths and future direction. Depending on the distribution of services within the matrix, an audit might reveal an organization that needs to redirect resources to generate more new products or services.

According to Hirsh, 2017, "The BCG Strategic Portfolio Model is a method of approaching and analyzing business marketing and growth developed by the Boston Consulting Group. The primary guiding principle of the BCG group's strategy is that experience in a market share leads to reduced costs and higher profits. This model uses the BCG marketing matrix, a system to classify business enterprises based on their potential for profits and growth. The model also applies mathematical formulas to business enterprises or products to calculate potential growth and earnings" (para).

Cows, Children, Stars and Dogs The BCG growth matrix part of the model classes each product as a "cash cow," "problem child," "star" or "dog." "Cash cows" represent product lines that bring in a high income at low cost to the company, leaving plenty of money to put to other uses. "Star" product lines may bring in some profits but require more investment to maintain their market share. These are products with the potential to become future "cash cows" if the company invests in them wisely. "Problem children" do not generate cash flow and require more investment but still have potential to grow. These are the products to watch, as they can eventually become either "stars" and then "cash cows" or "dogs." "Dog" products may generate some income or loss but have slow-growing markets, making them poor continuing investments for a company's dollars(Hirsh, 2017),

The "Experience Curve" Another portion of the BCG model proposes an "experience curve" that graphs the increased profit as a company gains experience and market share with a particular product. The BCG model theorizes that each time a company's output increases so that it produces twice as much of a specific product as it used to, the cost to create each unit declines by 20 to 30 percent. This decrease is due to workers increasing production speed as they become familiar with the process. This theory relies on maintaining a low turnover in the work force and no increase in materials costs(Hirsh, 2017).

Analysis

Once a company divides its products into these four categories, it can develop a marketing strategy to support the "cash cows," increase market share for "stars," phase out "dogs" and keep an eye on "problem children." Based on these divisions, dollars earned by the "cash cows" are allotted to marketing and production efforts for "star" products to increase the "experience curve" for those products and gain a larger market share. Marketing and production dollars may also flow toward the "problem children" to turn these products into "stars." The BCG model looks at competitors for those products to determine whether the potential to gain market share justifies the costs(Hirsh, 2017).

In the niche strategy, the overall market is in decline but the organization is increasing in this area. Hillestad and Berkowitz (2013) stated "If the niche strategy is to be profitable, too many competitors cannot be vying for the same segments. Second, it is critical to estimate the size of these niches with some degree of accuracy because, again, total market demand is on the downward slope. Finally, the internal efficiency of operations is essential as an avenue to any future increase in profitability because market demand will not be increasing" (p 190). For the harvest strategy when the market is in decline and the organization is mature, Hillestad and Berkowitz (2013) stated "Although there may be political and public relations pressure against the harvest strategy, it is still an important option to consider in one case: when the organization is in the maturity stage and the marketplace is in decline (Figure 6). If managed properly, the harvest strategy can be employed to maximize the organization's effectiveness" (p 191). For the drop strategy when the market and the organization is in decline, Hillestad and Berkowitz (2013) stated "if both the marketplace lifecycle and the organization's lifecycle are in the decline stage, it is appropriate to drop the service, sell it, or merge with another entity (Figure 6). It is important to recognize also that declining services tend to consume a disproportionate share of management time and of financial resources. 19 Any business must recognize the seriousness and risk of a drop strategy. Before dropping any service, management must assess the internal and external impacts of the decision. From an internal perspective, it is necessary to determine the importance of the service to the organization's mission, the interrelationships of the service and other business lines, and its contribution to these other lines" (p 192).

The necessity strategy, Hillestad and Berkowitz (2013) stated "Such a strategy is carried out in the belief that it is necessary to offer the service in order to compete effectively, even when the service is not expected to gain a large share of the existing market. The only limitation on capturing market share is the prior existence of competitors" (p 185). The maintenance strategy is when the lifecycle is in the mature stage, Hillestad and Berkowitz (2013) stated "The remaining organizations must reexamine the factors in the marketing mix in order to survive in mature markets. Healthcare providers who are not the leaders must ask themselves the following questions:

  1. Is there a segment of the market that is not being served?
  2. Can the product/service be improved?
  3. Can the product/service be distributed more efficiently, or can accessibility be significantly increased?
  4. Can the product/service be offered at a lower price?
  5. Can a superior advertising campaign be mounted?

consumer testing, and the marketing needed to launch the product can be very high, especially if it's a competitive sector. Growth Stage: The growth stage is characterized by a strong growth in sales and profits, and because the company can start to benefit from economies of scale in production, the profit margins, as well as the overall amount of profit, will increase. This makes it possible for businesses to invest more money in the promotional activity to maximize the potential of this growth stage. Maturity Stage: During the maturity stage, the product is established and the aim for the manufacturer is now to protect the market share they have built up. This is probably the most competitive time for most products and businesses need to invest in any marketing they undertake. They also need to consider any product modifications or developments to the production process which may give them a competitive advantage. Decline Stage: The market for a product will start to shrink, and this is what's known as the decline stage. This shrinkage could be due to the market becoming saturated (i. all the customers who will buy the product have already purchased it), or because the consumers are switching to a different type of product. While this decline might be determined, it may still be possible for companies to make some profit by switching to less-expensive production methods and cheaper markets (Shvets, 2013).

Every organization would like to consider that it out of the competition in the eyes of its

customers. The organization that utilizes a differentiation strategy does so with the target of

creating a product or service that is valued and realized by its customers as unique and better

than the competition. organizations that succeed in investigating differentiation strategy have one

or a set of the following features: serious scientific research, highly experts and creative product-

improvement staff, a powerful sales force and a strong standing for quality and innovation

(Agyapong, Osei & Akomea, 2015).

Making strategic trade-offs does not require hospitals to become what Regina Herzlinger called "focused factories" organizations providing only one service to many patients (Market-Driven Health Care, 1997). For example, Shouldice Hospital, in Ontario, Canada, is an example. Its only service is hernia surgery. It pulls patients from long distances for its cost-effective and high- quality care, and thus has become the model of the focused factory. By focusing on patients with specific disease conditions or characteristics, or on particular organs or surgical procedures, organizations have made similar trade-off decisions. Strategic trade-offs also can be evaluated in terms of competitive scope (broad versus narrow) and pricing policy (low price versus premium price). The goal of organizations with a low-price strategy is to deliver a product of acceptable quality at a price below that of its competitors. By contrast, organizations with a premium-price strategy select narrow market segments with unusual needs, and offer products and/or services that are widely acknowledged as superior on at least one dimension (Young, 2005).

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HCS 539 Lecture Notes BCG Matrix

Course: Marketing For Health Care (HCS 539)

60 Documents
Students shared 60 documents in this course

University: University of Phoenix

Was this document helpful?
HCS 539 LECTURE NOTES BCG MATRIX
BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic
position of the business brand portfolio and it's potential. The broad nature of the BCG matrix
often makes it too limiting for significant strategy formulation. Yet, in health care organizations,
it can serve as a valuable conceptual framework to stimulate strategy discussions.
The BCG framework is a useful tool for focusing management attention on broad marketplace
considerations and for getting participants to discuss the issues of market growth and the
requirements for market dominance in a particular clinical setting. The BCG matrix is also a
useful tool for helping a medical organization assess its internal strengths and future direction.
Depending on the distribution of services within the matrix, an audit might reveal an
organization that needs to redirect resources to generate more new products or services.
According to Hirsh, 2017, "The BCG Strategic Portfolio Model is a method of approaching and
analyzing business marketing and growth developed by the Boston Consulting Group. The
primary guiding principle of the BCG group's strategy is that experience in a market share leads
to reduced costs and higher profits. This model uses the BCG marketing matrix, a system to
classify business enterprises based on their potential for profits and growth. The model also
applies mathematical formulas to business enterprises or products to calculate potential growth
and earnings" (para.1).
Cows, Children, Stars and Dogs
The BCG growth matrix part of the model classes each product as a "cash cow," "problem child,"
"star" or "dog." "Cash cows" represent product lines that bring in a high income at low cost to
the company, leaving plenty of money to put to other uses. "Star" product lines may bring in
some profits but require more investment to maintain their market share. These are products with
the potential to become future "cash cows" if the company invests in them wisely. "Problem
children" do not generate cash flow and require more investment but still have potential to grow.
These are the products to watch, as they can eventually become either "stars" and then "cash
cows" or "dogs." "Dog" products may generate some income or loss but have slow-growing
markets, making them poor continuing investments for a company's dollars(Hirsh, 2017),
The "Experience Curve"
Another portion of the BCG model proposes an "experience curve" that graphs the increased
profit as a company gains experience and market share with a particular product. The BCG
model theorizes that each time a company's output increases so that it produces twice as much of
a specific product as it used to, the cost to create each unit declines by 20 to 30 percent. This
decrease is due to workers increasing production speed as they become familiar with the process.
This theory relies on maintaining a low turnover in the work force and no increase in materials
costs(Hirsh, 2017).
Analysis

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