MARKETING MANAGEMENT

ASSIGNMENT II
QUESTION:
What do you mean by SBU analysis. Take 2 companies and identify their SBU units. How will you place them in the BCG matrix. Give reasons.

Submitted by, Suman Joseph Bunglavan MBA(FT) IInd sem Roll No:51 On 26/3/2013

INTRODUCTION
Strategic business units are absolutely essential for multi product organizations. These business units are basically known as profit centres. In business, a strategic business unit (SBU) is a profit center which focuses on product offering and market segment. SBUs typically have a discrete marketing plan, analysis of competition, and marketing campaign, even though they may be part of a larger business entity. The idea was developed by Mckinsey & Co. (Consulting Firm) & General ElectAric in 1971. Separate operating entities within an organization. Have its own executive group with profit responsibility In 1990 AT&T had 19 business units. They are focused towards a set of products and are responsible for each and every decision / strategy to be taken for that particular set of products. Strategic business units can be best explained with an example. Example of Strategic business units The best example of strategic business unit would be to take organizations like HUL, P&G or LG in focus. These organizations are characterized by multiple categories and multiple product lines. For example, HUL may have a line of products in the shampoo category, Similarly LG might have a line of products in the television category. Thus to track the investments against return, they may classify the category as a different SBU itself. There are several reasons SBUs are used in an organization mentioned on the importance for using SBUs in a multi product organization. However, along with the reasons for using SBUs there are also some powers which needs to be inferred on an SBU. Planning independence, Empowerment and others are such powers which influence a SBU. 3 of such features are discussed below. 1) Empowerment of the SBU manager Several times the empowerment of SBU managers is crucial for the success of the SBU / products. This is mainly because this manager is the one who is actually in touch with the market and knows the best strategies which can be used for optimum returns. Thus several times, the SBU manager might need a higher investment for his products. At such times the manager should be supported from the organization. Only this confidence will help the manager in the progress of the SBU.

2) Degree of sharing of one SBU with another This point is directly connected to the first one. What if one SBU needs some budget but the same is not offered because the budget is being shared by 2 other SBUs and as it is the budget is short. Thus the first SBU does not get the independence to implement some important strategies. Similarly there might be other restrictions applied to one SBU as it is using some resources which are shared by another SBU. This might not always be negative. Of one SBU gains more profit then usual, this revenue might also become useful for the other SBU thereby promoting growth of both of them. This is where sharing actually plays a positive role. 3) Changes in the market An SBU absolutely needs to be flexible because it needs to adapt to any major changes in the market. For example if an LCD manager knows that LEDs are more in demand now, he needs to communicate to the top management that he would also like a range of LED products to make the SBU even more profitable. Thus by adding LED to its portfolio, the SBU can immediately become double profitable. Thus by adjusting to change on SBU levels, the organization as a whole can become profitable.

The key to Strategic business management is to have a strict watch on the investment and returns from each SBU. The SBU manager too plays a crucial role in this and hence he is recruited from the industry with extensive experience of that particular industry. Portfolio / Multi SBU management and is done at the absolute top level of the management. Each and every change in the market, and its affect on SBUs is anticipated which is then taken into consideration. Hence, for a multi product organization, business management may actually mean product portfolio management or SBU management.

An SBU may be a business unit within a larger corporation, or it may be a business unto itself. Corporations may be composed of multiple SBUs, each of which is responsible for its own profitability. General Electric is an example of a company with this sort of business organization. SBUs are able to affect most factors which influence their performance. Managed as separate businesses, they are responsible to a parent corporation.General electric has 49 SBUs.

Companies today often use the word segmentation or division when referring to SBUs or an aggregation of SBUs that share such commonalities.

Commonalities
An SBU is generally defined by what it has in common, as well as the traditional aspects defined by McKinsey: separate competitors; and a profitability bottom line. Four commonalities include:

Revenue SBU Like Marketing Cost SBU Like Operations/HR Profit SBU Like sales judged on net sales not gross

Success factors

There are three factors that are generally seen as determining the success of an SBU: 1. the degree of autonomy given to each SBU manager, 2. the degree to which an SBU shares functional programs and facilities with other SBUs, and 3. the manner in which the corporation is because of new changes in market.

BCG MATRIX

BCG analysis is mainly used for Multi Category / Multi Product companies. All categories and products together are said to be Business portfolio. Thus, the various entities of your business portfolio may move forward by a different pace and with a different strategy. The

BCG analysis actually helps you in deciding which entities in your business portfolio are actually profitable, which are duds, which you should concentrate on and which gives you a competitive advantage over others.The BCG matrix (aka B.C.G. analysis, BCG-matrix, Boston Box, Boston Matrix, Boston Consulting Group analysis, portfolio diagram) is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis. At a holistic level, they get to make a decision on which product to continue and which product to be divested. Which product can give new returns with good investment, and which products are reaching the apex of market share. When using the Boston Consulting Group Matrix, SBUs can be shown within any of the four quadrants (Star(Matured Company), Question Mark(New Company), Cash Cow(Well Establish Company), Dog(Share Market)) as a circle whose area represents their size. With different colors, competitors may also be shown. The precise location is determined by the two axes, market Growth as the Y axis, Market Share as the X axis. Alternatively, changes over or two years can be shown by shading or other differences in design.xx. Thus,Star products are currently have high growth and high market share however question mark is product with low share but high growth. Cash Cow has high share but low growth. Finally,dog is product that has low growth and low share. BCG Growth Share Matrix The BCG growth share matrix was developed by Henderson of the BCG group in 1970s. The matrix classifies businesses / SBUs by 1) Relative Market Share The market share of the business / SBU / Product in the market as compared to its competitors and overall product / category. 2) Market growth rate The growth rate of the industry as a whole is taken into consideration from which the growth rate of the product is extrapolated. This growth rate is then pitched on the graph.

Thus by having 2 basic but at the same time very important factors on X axis and Y axis, the BCG matrix makes sure that the classifications are concrete. Calculating the Market growth rate comprises of both industry growth and product growth rate thereby giving a fair knowledge of where the product / SBU stands in comparison to the Industry. The market share on the other

hand comprises of the competition and the product potential in the market. Thus when we consider growth rate and market share together, it automatically gives us an overview of the competition and the industry standards as well as an idea of what the future might bring for the product. Once the businesses have been classified, they are placed into four different quadrants of the matrix. The quadrants of the matrix are divided into 1) Cash Cows High market share but low growth rate (most profitable). 2) Stars High market share and High growth rate (high competition) 3) Question marks Low market share and high growth rate (uncertainty) 4) Dogs Low market share and low growth rate (less profitable or may even be negative profitability)

Success Sequence in BCG Matrix The Success sequence of BCG matrix happens when a question mark becomes a Star and finally it becomes a cash cow. This is the best sequence which really give a boost to the companies profits and growth. The success sequence unlike the disaster sequence is entirely dependent on the right decision making. Disaster sequence in BCG Matrix Disaster sequence of BCG matrix happens when a product which is a cash cow, due to competitive pressure might be moved to a star. It fails out from the competition and it is moved to a question mark and finally it may have to be divested because of its low market share and low growth rate. Thus the disaster sequence might happen because

of wrong decision making. This sequence affects the company as a lot of investments are lost to the divested product. Along with this the money coming in from the cash cow which is used for other products too is lost.

The Product/Market Oppurtunity Matrix

It identifies four alternative marketing strategies that may be used to maintain and / or increase sales of business units and products : market penetration, product development, market development, and diversification.

Examples for SBU Analysis

BCG MATRIX OF HINDUSTAN UNILEVER LIMITED: The major Strategic Business units and brands of HUL are as follows Food brands: Annapurna salt and atta, Bru coffee, Brooke Bond (3 Roses, Taj Mahal, Taaza, Red Label) tea, Kissan squashes, ketchups, juices and jams, Lipton tea, Knorr soups & meal makers and soupy noodles, Kwality Wall's frozen dessert, Modern Bread, ready to eat chapattis and other bakery items. Homecare Brands: ActiveWheel detergent, Cif Cream Cleaner, Comfort fabric softeners, Domex disinfectant/toilet cleaner, Rin detergents and bleach, Sunlight detergent and colour care, Surf Excel detergent and gentle wash, Vim dishwash, Magic Water Saver Personal Care Brands: Aviance Beauty Solutions, Axe deodorant and aftershaving lotion and soap, LEVER Ayush Therapy ayurvedic health care and personal care products, , Dove skin cleansing

& hair care range: bar, lotions, Hamam, Lakm beauty products and salons, Lifebuoy soaps and handwash range, Liril 2000 soap, Lux soap, body wash and deodorant, Pears soap, Pepsodent toothpaste, Pond's talcs and creams, Rexona soap, Sunsilk shampoo, Sure anti-perspirant, Vaseline petroleum jelly, skin care lotions, TRESemm.

MARKET SHARE ANALYSIS OF PRODUCTS:

From the above market share analysis, we can see that brands like AXE, Fair And Lovely, vim, wheel etc have high market growth and market share, so it can b under star in bcg matrix.

Similarly Taaza, Bru etc have low market share and low market growth, so it come under dog column in BCG matrix.

RELATIVE MARKET SHARE STARS

o AXE o FAIR & LOVELY o LAKME ANTI AGEING o VIM o WHEEL o SURF EXCEL o LIFEBUOY o LUX o KWALITY WALLS o KISSAN JAM o KISSAN SOUP

QUESTION MARKS
o BRU o CLOSE UP o PEPSODENT o FAIR & LOVELY ACTIVE MENZ o DOMEX o RIN o BREEZE o TAJ MAHAL TEA BAGS o KISSAN KETCHUP

HIGH MARKET GROWTH RATE LOW

CASH COWS
o CLINIC PLUS o SUNSILK o VASELINE o REDLABEL o TAAZA

DOGS
o BROOKE BOND SEHATMAND

Nestle BCG MATRIX of Nestle:

Product line: Baby Foods,Bottled Water ,Breakfast Cereals, Coffee,Chocolate & Confectionery,Dairy products,Drinks,Ice Cream,In the Kitchen,Nestl Professional, Nutrition & Health,andPetcare. According to Nestle, the relative market share and market growth rates of different productsare given below:Name Ceralac Nestle Milk Kit Kat Maggi Noddles Nestle Dahi Relative Market Share 31.2% 21% 19% 18.76% 3% Market Growth Rate 45% 39% 34% 64% 12%

Market Growth

Star Ceralec

???
Nestle Milk Kit Kat Dog Nestle Dahi

Cash Cow Maggi Noddles

Relative Market Share