Boston Consulting Group Matrix (BCG Matrix) is a useful tool to understand the potential of different business units being managed by an organization. The following section presents BCG Matrix of Nestle:
Cash Cows
The cash cow is denoted by a high market share, however the growth rate of the industry is slow as the market has grown to the point of maturity. As a result, the pace of growth has declined. Despite the slowdown of market growth, the business units identified as cash cows continue to be lucrative for the organization due to the large market share. The brand Nesquik can be regarded as a cash cow as it is one of the leading milk flavour powder brands on a global scale. In 2014, the brand was able to generate a sales of US$850 million, which indicates the market share captured by this business unit (Lee, 2015). Along with the chocolate powder, the brand also offers other flavours for consumers. Moreover, the brand has established a prominent position in the flavoured milk category as well. Even though the industry has grown over the years, reaching a point of maturity, Nesquik continues to be a source of revenue for Nestle. Another product that can be identified as a cash cow is the coffee brand, Nescafe which is being sold in a mature industry. According to Gretler (2016), the coffee brand has illustrates a strong performance over the years, with an increase in the sales in 2015.
Stars
The business units that are deemed as stars hold a large market share as well. However the point of difference between cash cow and star is that the industry has a faster growth rate and is still in the phase of development. The mineral water packaged by Nestle is the business unit which is operating in an industry that has the potential to grow further. Even though new mineral water brands have been introduced by other companies, the mineral water produced by Nestle has maintained a significant position. The brand Nestle pure life is currently being supplied to 40 regions across the globe (Nestle, 2015). It has been further mentioned that the bottled water is likely to gain an increased market share in the coming years due to the rising number of consumers purchasing mineral water. Therefore, it can be seen that the mineral water brand has to potential to become a cash cow in the next 10 years. Since the rise in population and increased urbanization leads to increased consumption, nestle water is expected to become a sustainable source of earnings for the company. Another factor that has contributed in making it a star is the potential for growth in the emerging markets, which offer significant growth opportunities to the business on a global scale.
Question Marks
The business units that are identified as question mark are those who do not have a large market share, despite the industry holding growth opportunities for the specific business segment. They are not able to deliver the results that are expected in the high potential offered by the industry. There is a great deal of uncertainty attached with these business segments as they can become stars and cash cows if progress is made. On the other hand, they can decline and become a source of liability for the company. Maggi noodles has become a question mark for Nestle as the negative information pertaining to the brand has resulted in a decline in its sales. In 2015, the brand has gained negative reputation due to the violation of food safety law, as the products was assumed to contain significant amount of lead traces. Rana (2015) has discussed about the negative impact this information had on the company sales, as shown by the decrease of $302 million in the revenue. As a result of this news, the company had to sustain significant losses due to recall of the Maggi noodles product from the market. Moreover, the sales in the region have dropped up to 20% following the scandal about the noodles. Based on this background, it can be stated that the Maggi noodles brand is operating as a question mark. Nestle will have to work towards improving the brand reputation and restore the consumer trust to regain its sales in this domain. Inability to handle the challenge in an effective manner can lead to the noodles becoming a dog. Other brands can take benefit from this situation and strive to gain a larger market share and highlight the food safety of their own products.
Dogs
The business units that are seen as Dogs are operating in an industry that has reached the stage of maturity. These business units tend to hold a small market share in the industry and with the low potential of growing into high market share businesses, an organization may decide to withhold future investment in them. The last component in the BCG matrix of Nestle is brands that can be identified as dogs. Nestle had launched a brand for people who were living an active life style and engaged in sports. The brand named Powerbar aimed to target this market and generate sales by selling the products that were packed with the nutrition needed for such an active lifestyle involving intense physical activity. The main product that was developed under the brand name was an energy bar. The management expected the brand to gain market share with the passage of time, however, the business unit was unable to deliver the expected level of performance. The brand was not able to hold a significant amount of market share despite the marketing initiatives taken on by the company. A viable course of action for brands that are under performing and show no significant growth chances in the future is to liquidate them. Nestle has taken the decision to sale the powerbar business to Post Holdings in order to retreat from further investment in a business unit that offered no significant growth (Revill and Stynes, 2014).
References
Gretler, C., 2016. Nestle Sales Beat Estimates on Coffee as Competition Heats Up. Bloomberg, [online] April 14. Available at: <http://www.bloomberg.com/news/articles/2016-04-14/nestle-revenue-beats-estimates-on-nescafe-nespresso-coffee> [Accessed 8 September 2016].
Lee, H., 2015. Overview of World’s Chocolate Powder Drinks Market and Toddy’s Evolution. Euromonitor International. [online] February 26. Available at: <http://blog.euromonitor.com/2015/02/overview-of-worlds-chocolate-powder-drinks-market-and-toddys-evolution.html> [Accessed 8 September 2016].
Nestle. 2015. Nestle Annual Review: Water. Available at: <http://www.nestle.com/asset-library/documents/investors/annual-report/nestle-annual-review-2015-water.pdf>[Accessed 8 September 2016].
Rana, P. 2015. Nestlé India’s Sales Fall 20% After Maggi Noodle Scare. The Wall Street Journal, [online] July 29. Available at: <http://www.wsj.com/articles/nestle-indias-sales-fall-20-after-maggi-noodle-scare-1438175561> [Accessed 8 September 2016].
Revill, J., and Stynes, T., 2014. Nestlé Sells PowerBar Brand. The Wall Street Journal, [online] February 3. Available at: <http://www.wsj.com/articles/SB10001424052702303942404579360552164811352> [Accessed 8 September 2016].