BCG matrix and Procurement
BCG matrix and Procurement
In daily sales tip 303, I talked about 2 questions to raise when you’re talking to a buyer to understand their perspective and their business priorities. These 2 questions are:
- “What are the objectives for your business this year?“ encouraging the buyer to think bigger than their own area of responsibility.
- “What can I do to support you in achieving these objectives?” which helps to create a climate of trust and understanding.
Now, some people asked me: “What if you’ve never met the buyers before or somehow you cannot connect with them before the first meeting. Is there a way of finding out what their priorities are?”
Well, that’s a very valid question. It must be stated that asking first hand questions is always better, however there is a tool I would recommend to use in these situations.
The tool is called the BCG matrix. It was developed by the Boston Consulting Group in the 1970s and continues to be one of the most popular tools for portfolio analysis.
It’s a 4-box grid and on the vertical axis of the matrix you’ll find market growth rate, which explains the growth of the current market within the industry. For example, the solar panel or wind turbine industry has high levels of growth whereas the paper product industry is showing slow growth levels mainly due to digitalisation.
The horizontal axis shows the relative market share which determines the competitive position of an organisation within the industry. Apple, for example, has a high market share in the smartphone industry whereas any typical start up business could be considered to have low market share.
Combined, there are four different stages in the BCG-matrix. I’ll explain them all and tell you what the procurement strategy is for each of them.
The first box is called “question mark”. Here you’ll have low market share and high market growth. This is typically the start of the life cycle for most businesses.
Here, buyers are expected to support a company’s growth ambitions; hence the focus will be on anything that will help grow the relative market share and turn the product or service into a “star”. Suppliers will be selected based on innovation capabilities and willingness to partnership. Your role as a sales professional is to help them be successful.
The second box is called “star”. Here, companies will have a high market share and a high market growth. This means that there is a ‘make it happen’ mentality.
Buyers would seek partnerships with reliable suppliers. As a sales professional, your focus should be on securing supply and quality. Price is less of an issue here.
The third box is called “cash cow”. Here companies will have a high market share and a low market growth. This is where they would like to maximise their profits so they can invest the freed-up cash in question marks or stars.
This means buyers are focused on cost reductions. You’ll find that these companies will be running tenders and doing other cost-cutting exercises.
The fourth and final box is called “dog”. This is usually the end of the life-cycle where you’ll have low market share and there is low market growth. The only way to stay in the market is by being price-leader.
This means buyers will be focused on price reduction. As a sales professional you can expect tough negotiations here.
An important final comment to make is that a company can have multiple products in different stages of the BCG-matrix. This means there is no one-size-fits-all approach with regard to how procurement approaches the market, however always consider your product or service and how that relates to your customer’s portfolio.