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CA Intermediate · Financial Management and Strategic Management · Strategic Choices

Kaveri Foods, a packaged snack maker, has a flavoured peanut brand with a very high market share in a market growing at only 2% a year. It generates large surplus cash and needs little new investment. Under the BCG matrix, how should this business be classified and what is the usual recommended approach?

The business is a cash cow because it has high relative market share in a low-growth market. It produces surplus cash with little reinvestment need, so the usual approach is to maintain its position and use the cash to fund stars or promising question marks elsewhere in the portfolio.

  1. ACash cow; maintain position and use surplus cash to fund other businessesCorrect
  2. BStar; invest heavily to retain growth leadership
  3. CQuestion mark; invest selectively or divest after analysis
  4. DDog; liquidate or divest at the earliest

Explanation

High relative market share with low market growth defines a cash cow. Such units generate more cash than they need, so the usual approach is to hold the position (milk it) and channel cash to stars and promising question marks. A star requires high market growth, which is not present here.

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