Portfolio Analysis and Price Cutting
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Questions and Answers

What is the primary objective of a 'Build' strategy in portfolio analysis?

  • To increase the SBU's market share (correct)
  • To maintain the SBU's market share
  • To decrease the SBU's market share
  • To liquidate the SBU

    • What are the two criteria used in the Boston Consulting Group's growth-share model?

  • Gross profit and market share
  • Net profit and market growth
  • Market growth and market share (correct)
  • Market size and market share

    • What is the purpose of the Boston Consulting Group's growth-share model?

  • To forecast market growth
  • To evaluate the product portfolio (correct)
  • To determine the SBU's competitive position
  • To identify the annual growth rate

    • What is the outcome of using a 'Build' strategy in portfolio analysis?

    <p>The SBU's market share increases</p> Signup and view all the answers

    What is the term used to describe the rate of market growth in the Boston Consulting Group's growth-share model?

    <p>Growth potential</p> Signup and view all the answers

    What is the purpose of plotting SBUs on a matrix according to the rate of market growth and their market share relative to that of the largest competitor?

    <p>To evaluate the product portfolio</p> Signup and view all the answers

    What is the name of the model used for portfolio analysis that involves plotting SBUs on a matrix according to the rate of market growth and their market share relative to that of the largest competitor?

    <p>The Boston Consulting Group (BCG) model</p> Signup and view all the answers

    What is the outcome of Freddie Laker's price cutting on the North Atlantic routes?

    <p>Freddie Laker's company was forced into liquidation</p> Signup and view all the answers

    What is the primary objective of the Hold strategy in portfolio analysis?

    <p>To maintain the current share of the market</p> Signup and view all the answers

    What is the main goal of the Harvest strategy in portfolio analysis?

    <p>To increase short-term cash flows as far as possible, even at the expense of the SBU's longer-term future</p> Signup and view all the answers

    What is the purpose of the Divest or terminate strategy in portfolio analysis?

    <p>To rid the organization of SBUs that act as a drain on profits or to realize resources that can be used to greater effect elsewhere</p> Signup and view all the answers

    What is the main limitation of portfolio analysis, according to the text?

    <p>The quality of the basic data inputs significantly influences its practical value</p> Signup and view all the answers

    Which strategy is best suited for cash cows that are weak or are in a market with limited future life?

    <p>Harvest</p> Signup and view all the answers

    What is the main objective of the Invest strategy in portfolio analysis?

    <p>To turn question marks into stars</p> Signup and view all the answers

    Which strategy is often used for question marks when there appear to be few real opportunities to turn them into stars?

    <p>Harvest</p> Signup and view all the answers

    What is the essential objective of the Divest or terminate strategy in portfolio analysis?

    <p>To rid the organization of SBUs that act as a drain on profits or to realize resources that can be used to greater effect elsewhere</p> Signup and view all the answers

    What is the limitation of using BCG matrices in making investment decisions?

    <p>All of the above</p> Signup and view all the answers

    What do Abell and Hammond highlight as the shortcomings of relying on growth-share analysis?

    <p>All of the above, including other factors influencing cash flow</p> Signup and view all the answers

    What do portfolio charts lack in terms of comparing business units?

    <p>Insight into how one business unit compares to another in terms of investment opportunity.</p> Signup and view all the answers

    What is the significance of other approaches to portfolio analysis?

    <p>They consider a broader spectrum of factors.</p> Signup and view all the answers

    What is the primary concern in using the BCG matrix?

    <p>Insufficient information for investment decisions.</p> Signup and view all the answers

    What does Abell and Hammond's 3 X 3 relative investment opportunity chart consider?

    <p>Market attractiveness and business position.</p> Signup and view all the answers

    What is the limitation of using BCG matrices in comparing business units?

    <p>It lacks insight into comparing business units in terms of investment opportunity.</p> Signup and view all the answers

    What is the primary purpose of other approaches to portfolio analysis?

    <p>To provide a more comprehensive analysis.</p> Signup and view all the answers

    Study Notes

    Portfolio Analysis

    • Airlines responded to Freddie Laker's price cutting by also cutting prices, eventually leading to Laker's company going into liquidation.

    The Boston Consulting Group (BCG) Model

    • The BCG growth-share model plots SBUs on a matrix according to market growth and relative market share.
    • The model uses two criteria: market share and growth potential.
    • The matrix is divided into four cells:
      • Star: high growth, high market share
      • Question Mark: high growth, low market share
      • Cow: low growth, high market share
      • Dog: low growth, low market share

    Strategies for SBUs

    • Build: increase market share to strengthen the SBU's position, often used for Question Marks.
    • Hold: maintain current market share, often used for Cash Cows.
    • Harvest: increase short-term cash flows, often used for weak Cash Cows or Dogs.
    • Divest or Terminate: rid the organization of unprofitable SBUs, often used for Dogs.

    Limitations of the BCG Model and Alternative Approaches

    • The BCG model has limitations, including dependence on data quality and ignoring broader environmental factors.
    • Alternative approaches include:
      • General Electric multifactor matrix
      • Shell directional policy matrix
      • Arthur D. Little strategic condition matrix
      • Abell and Hammond's 3 X 3 relative investment opportunity charts
    • These models consider market attractiveness and business position in addition to market growth and share.

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    Description

    Portfolio analysis models and the impact of price cutting on businesses, using the example of Freddie Laker's airline company.

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