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What is Market Share? Why it is Important & How BCG Matrix is used by the Companies?

What is Market Share? Why it is Important & How BCG Matrix is used by the Companies?

Published on 23 August 2022 .Views 85 .Comments 0
Market Share is a common term used for companies that describe the positioning and strength of their brand and products. Market Share of products/brands becomes an important factor to look upon while making investing decisions. So, let’s discuss what is Market Share and why it is important for the companies in this article as we move forward.

What is Market Share?

·       Market Share refers to the domination of a particular company’s product or brand. It represents the strength of a particular product/brand of the company in the market.

·       Many times, due to the high market share of a product or a brand, the company can create a monopoly in the market. For Ex.: the iOS operating system of Apple, is owned only by Apple and hence enjoys the monopoly market situation.

·       To gain or maintain the market share, the company continuously invests in product development & innovation, marketing, etc.

Some Examples:

1) Asian Paints:

·       Asian Paints enjoys a 60% market share in decorative paints and a 20% market share in automotive coatings.

2) Astral:

·       Astral is having 7.5% market share in PVC Pipes whereas a 3.2% market share in the Adhesives segment.

3) Divi’s Labs:

·       The company enjoys a 70% market share in Naproxen and Cough Suppressant

4) Pidilite:

·       Pidilite enjoys a monopoly market with over 70% market share in the Adhesives segment.

5) Nestle India:

·       The company has a high market share across its product portfolio. It is having 70% market share in the condensed milk segment and around 96% market share in the Cerelac category.

How do Companies Identify High Market Share Products?

To understand which product has a good market share or which product the company needs to focus on to gain market share, there is a famous method to evaluate commonly termed as BCG Matrix.

·       BCG Matrix or BCG Growth-Share Matrix was created by Boston Consulting Group that uses graphical representations of a company’s products and services to help the company decide what it should keep, sell, or invest more in.

·       The Matrix is divided into 4 quadrants based on an analysis of market growth and relative market share.

·       The first of the 4 quadrants are Stars, where the products which are having a market share and high growth potential. Here, the company sharply focuses on this product and continues to invest in this.

·       Next to Star is Cash Cow, this includes those products where the company enjoys a high market share but there is a low growth rate and hence the company invests in such products to generate cash and reinvest in the star products.

·       The third category is Question Marks, wherein the growth of the product is quite high, but currently, it is having a low market share, and thereby the company invest in these products only when they can convert these products into stars.

·       Lastly, the 4th quadrant of the matrix is Dogs, where the product is having low growth prospects and is also having a low market share. Here the company generally liquidates or divests such products.

Example of Tata Chemicals via BCG Matrix:

·       The Lithium Ion battery business of the company can be considered a star product where with the advancement of Electric Vehicles technology there are huge growth prospects for this product and the company is establishing itself as a leading player in this segment.

·       Further, Tata Chemicals’ Soda Ash business can be considered a cash cow business because the company enjoys a high market share in this product and there is a low growth prospect but this business is a cash cow segment for the company.

·       For Tata Chemicals, the Specialty Chemical business is the question mark products where the company is steadily trying to establish these products and set up it into star products portfolio.

·       Tata Chemicals has reduced its presence as well as investment into cement business as the business was not generating enough revenue as well as market share and hence this business segment can be termed as Dog quadrant for the company.

What Should Investors Do?

BCG Matrix is one of the famous parameters based on which the company categorized its products as per the quadrants of the matrix and tries to act accordingly. Market Share of a products/brands of a company becomes an important factor for the investors to look upon while investing in any company and hence one should carefully assess the same. Also, one should not blindly invest in a company with high market share products only. Do follow due diligence before making an investment decision.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.

Originally Published On:https://blog.investyadnya.in/what-is-market-share-why-it-is-important-how-bcg-matrix-is-used-by-the-companies/
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