Want to Generate Greater Returns? | Use the BCG Advantage Matrix | Explained with Examples

Last updated: Feb 22, 2020

 Model Name : Boston Consulting Group (BCG) Advantage Matrix
Creator : Boston Consulting Group (BCG)
 Year : 1981
Purpose : a framework for directing business strategies for optimum profit.

What is BCG Advantage Matrix?

There’s a difference between BCG Portfolio Matrix and BCG Advantage Matrix. It is a matrix that targets to distinguish various kinds of environment that businesses operate within.

It depends on the following:

• The size of the competitive advantage
• The number of ways through which it can be achieved

4 Quadrants of BCG Advantage Matrix

Similar to the growth-share matrix, the BCG Advantage Matrix identifies four kinds of industry:

1. Stalemate
2. Volume
3. Fragmented
4. Specialized

However, this matrix takes as its axes the two opposing variables:

• Competitive advantage
• Competitive differentiation

The former axis basically covers the approach defined in the more prevalent BCG growth-share matrix, while the latter embodies the approach of distinguishing products that was used by Michael Porter so that they do not contest face-to-face with their competitors.

1. Stalemate Industries

Here, there is a little gain from scaling up or further specialization. Hence, the possibility for competitive advantages is limited. Since advantages are tiny, only a few approaches are present to achieve them.

Moreover, technological advances are commonly espoused by all players in the industry, and we observe quick convergence in product performance or design.

Such industries attempt to be highly competitive, mature, and often parallel to commodity-type products where price is an important buying norm. For instance, manufacturers of desktop computers, or fertilizer industry or producers of clothing and similar goods.

The suggested strategy here is to cut the prices while sustaining production, which is often done through outsourcing.

Let’s take an example of Kellogg’s here which is famous for its cereals. If we go to a grocery store, we may see a variety of corn flakes and muesli with different brand names.

Those brands, however, may not pack it as neatly as Kellogg’s. They may do good packaging and sell it in various places but not like the packaging of Kellogg’s.

Kellogg’s is a big name when it comes to cornflakes. Then, where is the competition coming in from? The real competition comes from all these small brands as they are able to produce tasty cornflakes at rates much lower than Kellogg’s.

And you would probably see them sitting behind Kellogg’s on the racks in the aisle. This would make it easier for you to compare the prices and choose the one that is not heavy on your pockets until you are a loyal customer of Kellogg’s.

2. Volume Industries

Here limited yet exceedingly substantial advantages exist. Volume businesses do not profit from specialization. However, they do have the capacity to gain from scaling up.

These businesses create strategies that entail ways to boost the production volume. They are often capital intensive. Moreover, they are dominated by a few giant industry players who attain the economies of scale.

In simpler words, let’s say the company produces more. When it produces more, what will be positively affected?

It will expect the sales to increase. When the sales are increased, it is very likely to get higher returns. But, what is the limitation here?

The company may be restricted by differentiation and market segmentation. Hence, the company should be able to distinguish its products from the competitors’ products or services.

Moreover, the company should be able to market its products or services in a sector where a competitor is unable to make a heavy dent in your sector. The example includes volume car manufacturers such as Ford, Toyota, and Renault, etc.

3. Fragmented Industries

These industries involve business with an excellent opportunity to profit from distinguishing itself from its competitors. However, the potential to profit from scaling up is limited.

In other words, the needs of the market are less well-defined, and several ways are present to gain an advantage. These businesses are often well-suited to niche players.

In addition, the probability may not be directly associated with size. Organizations, generally, grow by providing a variety of niche products to distinguish segments – a multi segmentation strategy.

The example includes a computer software or a service outlet or a restaurant, where scaling up is expensive and not really advantageous while distinguishing itself from competitors can attract a lot of new customers to the business.

For instance, if you see these specialty restaurants – let’s say Nandos. It specializes in peri-peri chicken. All of its dishes entail chicken and the peri sauces.

For them, they don’t want to grow more than that. Or if you look at some local restaurant that specializes in a few dishes. If you go there, you can’t have anything else other than those limited dishes it offers. The owner of that restaurant doesn’t want to grow too much – no premium on growth. This is how fragmented market works!

4. Specialized industries

These businesses can profit from both scaling up as well as specialization. Hence, pursuing either of them would be a great strategy. Here the potential advantage of differentiation is substantial, and there are several ways to achieve it.

Moreover, size and profitability are not automatically linked here. These businesses include solutions such as management consultancy to specific issues and companies involved in the application or development of advanced technology such as biomedical engineering.

These businesses are focused on segments and sheer learning curves. Comprehending the application of competitive advantage and generic strategies are key to success.

BCG Matrix is for Your Business

While designing your long-term strategic planning and considering your growth opportunities, using the BCG Advantage Matrix can give your business a competitive edge.

The matrix does not say anything about the cash flow, but its main goal is to provide a framework for directing business strategies for optimum profits.

Creating a strategy using this advantage matrix requires having a knowledge of both the business at hand and its competition to identify the appropriate quadrant for business and its optimal strategy.

 References & more information

• www.wikipedia.com
• Wijnolst & Wergeland (2009). Shipping Innovation.