CA Intermediate · Financial Management and Strategic Management · Strategic Analysis: Internal Environment
Mehta Foods sells a dairy product that has high market share in a market growing slowly. It generates much more cash than it needs to reinvest. In the BCG matrix, how should this business be classified and what is the usual strategic stance?
The business is a cash cow because it has high market share in a low-growth market. It generates 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.
- AStar; invest heavily to defend share
- BQuestion mark; invest selectively or divest
- CDog; liquidate immediately
- DCash cow; maintain and harvest cash to fund other businessesCorrect
Explanation
High relative market share with low market growth defines a cash cow. It needs little investment and produces surplus cash, which is used to fund stars and promising question marks. Stars have high growth, which is not the case here.
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