BCG Matrix
The BCG Matrix plots %Market share on the x-axis and %Growth Rate (how fast the product is taking over the market) on the y-axis. Combining these two factors can help companies visualise whether to improve, push, maintain or discontinue a product.
Application
The Dog quadrant shows low market growth rate and low market share. These products are generally not selling enough. It is possible that these products belong to a very competitive environment or simply the quality is not good enough. Products in this category may be draining resources and should be discontinued. Products on the Question Mark quadrant are those with currently low market share but high growth rate. Companies should research on how to effectively create awareness of these product. Question marks are named as such because even if companies push the product, no one know if it will end up being in the star, cash cow or dog quadrant. Products belonging to the Star quadrant are those with high market share and high market growth rate. This is where companies would like all their products to be. It is already dominating the market but still has room to grow. Using market segmentation will be helpful in analysing star products so companies can get a clear picture on which segment they can still tap on. As with anything in life, nothing stays on top forever that is why companies still needs to invest to continuously improve these products. Products in the Cash Cow quadrant are those with high market share but already slacking in market growth. These are the old and proven products that have been around for a few years. Potential for market growth is low because the market is already saturated. Companies should focus its efforts maintaining existing customers or explore facelifts and updates so that they can continuously milk the cow.
Curry's Customer Pyramid
Jay Curry’s Customer Pyramid segments customers based on the revenue that they bring in to the company. It is based on Pareto's 80/20 principle, and it states that 80% of the profit is contributed by 20% of customers.
The first are the Top 1% of Customers. These are customers who bought top of the line models and consistently buy your services or products. Next in the pyramid are the Large Customers which is approximately 4% then Medium Customers with 15% and the rest of the Small Customers with 80%. Also in the pyramid are the Inactive Customers who bought only once, the Prospective Customers or those who expressed interest in your products. Finally at the bottom of the pyramid are the Suspect Customers or those that do not know the product but might be interested.
Application
Curry’s Customer Pyramid allows companies to segment their customers so that they can distribute the company’s resources effectively. They should spend time and resources to keep their top, large and medium customers happy and satisfied. This includes giving preferential treatment and special discounts. It helps to have key accounts managers just to make sure these customers are fully satisfied.
With the lower 80% of customers, the goal is to move them higher to the pyramid. Companies can offer more products or solutions to them. In a more radical view, Tim Ferriss, author of the book ‘The 4-Hour Workweek’ even suggested to completely dump the small customers as they may not be worth the resources. Of course, this highly depends on the situation.
Deming Cycle
William Edwards Deming in the 1950’s proposed the PDCA diagram to help managers continuously improve products and processes. The Plan phase where managers design business processes and establish goals for improvement. The Do phase is where managers will implement the steps created from the planning phase and then test its performance. The Check phase is to monitor the effects of actions from the “Do” phase and report the results to decision makers. The last is the Act phase where a decision is made based on the previous steps and implement the changes needed to improve the process or product. If the change did produce the desired improvement, go back to the first phase and create a different plan.
Application
Deming Cycle is one way for companies to implement kaizen or continuous improvement. In today’s highly competitive environment, the only way to stay relevant is to continuously improve. The Deming Cycle can also provide a framework so that employees will not get confused when management is implementing change. It is a cycle so it never stops. Once the goals are achieved, start planning for your next round of improvement for a different process. How do you get ideas on what to improve? Ask internal and external customers. Do not ask for complements, ask for criticisms.
Pareto Principle
Here are some application for Pareto Principle in business:
✔ 80% of results come from 20% of your efforts
✔ 80% of revenue come from 20% of key customers
✔ 80% of clients come from 20% of your sales team
✔ 80% of sales come from 20% of products or services
✔ 80% of conversion come from 20% of marketing efforts
✔ 80% of complaints come from 20% of customers (industry dependent)
It may not be exactly 20% - it can be 1% or 5% or 10% etc, but the idea is a small amount of effort bring majority of results. It is also applicable in everyday life: you wear 20% of your clothes, only 20% of your friends are true friends, 20% of the people in the world controls 80% of wealth, and the list goes on.
Application
The whole lesson of Pareto Principle is organizations should focus their time and energy identifying, prioritizing, keeping, cultivating, developing, and expanding what matters most, the 20%.
Porter's 5 Forces Analysis
Porter’s 5 forces analysis was developed by Michael Porter, a Harvard business school professor during the 1970’s. It was intended to analyse how stiff the competition is within a given industry. It is usually used during feasibility studies before product development. By doing Porter’s 5 Forces Analysis, companies can decide whether a particular product is worth developing based on how crowded an industry is and how strong the existing competitors are. It can also be used to align marketing strategies for existing products.
The first variable Competitive Rivalry located at the center of the diagram. This is looking at the existing competitors in the industry; the size and number of companies competing. A favourable environment to introduce a new products are those that have low number of competitors. Companies don’t want to be competing in an industry with many big established companies.
The second variable is Barriers to Entry. An industry has high barriers for entry if the competition has cost leadership or strong brand loyalty and if the product requires very high capital expenditure.
The third variable is Threat of Substitutes. These are industries that have a lot of alternative products. Alternatives pertain to both direct and indirect competitors such as Ebooks vs publishers. Companies will not want to enter an industry that has a lot of substitute products unless they can clearly differentiate and create a demand.
The fourth variable is the Bargaining Power of Customers. An example of an industry where customers have strong bargaining power are medical devices. Competition is so intense that medical device companies sometimes give in to very low price demanded by customers only so they can secure the contract.
The last is the Bargaining Power of Suppliers. These usually happens in industries where there are limited number of suppliers. They do not have competitors that can offer you better pricing so you don’t have a choice but to buy from them.
Application
If you are a new entrant to an industry you would want the 5 forces to be low before considering to go in. You can use Porter’s 5 Forces Analysis to know which geographical location established brands are weak in so that you can start from there and work your way up. Nokia did try to re-penetrate emerging markets and re-market their 3310 model because they know high end smartphones are already dominated by Samsung and Apple.
If on the other hand, you are an established brand you would want to increase these 5 variables to discourage potential competitors. Nike and Adidas have been very active with their advertisements all these years. If you are a new entrant to the shoe business, you would need to shell out a very large amount of money for advertisement just to let your brand out there.
SWOT / SWOC Analysis
SWOT / SWOC analysis enumerates a company’s Strengths, Weaknesses, Opportunities and Threats. It can be used in planning marketing strategies, resource allocation, product development, hiring, operations and even mergers and acquisitions. SWOT can be used by just about any department who needs a clear picture where the company stands. Below are tips on how to effectively create a SWOT analysis:
Strengths are good internal attributes that companies have over its competitors. It’s the company’s competitive advantage. Strengths can include technical expertise, location, history, staff experience, business process reputation and others. If a direct competitor can do it then it is not a competitive advantage. Companies should capitalise and improve their strengths to further grow their business.
Weaknesses are internal attributes that the company can (and should) improve on. These are what makes a company at a disadvantage compared to its competitors. It can be lack of expertise, lack of staff, lack of R&D, location, network reach and others.
Opportunities are external factors that the company cannot control but can surely utilise to gain more sales. These includes factors such as new trends, consumer changing demographics, new markets and others. These are factors that companies should prepare to exploit.
Threats / Challenges are also external factors that may cause problems to the company. Examples of common threats are new government regulations, economic slowdown, threat of war, and others. These are the factors that companies should monitor and be aware of.
When creating SWOT analysis, try to limit the number of bullet points to three or four points per quadrant. Focus only on the major factors. Writing too many factors can make companies focus on unimportant points.
PESTLE analysis (Political, Economic, Socio-Cultural, Technological, Legal, Environmental) can be used to further elaborate on the opportunities and threats.
6 R's of Business
The 6 R’s of Business by Luis Gallardo is one approach to consider during decision making. The 6 R’s of business are cohesive, interdependent and should not undermine any other.
The first R is Reason which is the company’s mission and vision, values and purpose for doing business. Communicate this well to employees so that they will act with the same principle and direction as the company’s purpose.
The second R is Revenue, the backbone of any business, but should not be the sole priority.
The third is Rousers or internal activities that inspire employees or external which inspires customers.
The fourth is Reputation, a significant factor in today’s hyper-connected world.
The fifth is Relationship for both internal and external customers.
The sixth is Resilience which is the company’s ability to stay relevant across time. This is how the company reacts to opportunities and threats, its ability to adopt to change and innovate.
Application
The 6 R’s of Business can be used for any important decision that business owners and leaders would make. Leaders should not only focus on one and totally neglect the other for the business to thrive. Do not focus on temporary rewards such as revenue while sacrificing reputation or relationship or vice-versa – it cannot be all relationship but no revenue. Consider all the R’s in the decision.
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