The AIDAS theory of selling is one of the widest known theories and is the basis for training materials across numerous organizations.
It is based on the observation that a company's business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor, hence the name "growth-share".
Market growth serves as a proxy for industry attractiveness, and relative market share serves as a proxy for competitive advantage. The growth-share matrix thus maps the business unit positions within these two important determinants of profitability.
BCG Growth-Share Matrix This framework assumes that an increase in relative market share will result in an increase in the generation of cash.
This assumption often is true because of the experience curve ; increased relative market share implies that the firm is moving forward on the experience curve relative to its competitors, thus developing a cost advantage.
A second assumption is that a growing market requires investment in assets to increase capacity and therefore results in the consumption of cash. Thus the position of a business on the growth-share matrix provides an indication of its cash generation and its cash consumption.
Henderson reasoned that the cash required by rapidly growing business units could be obtained from the firm's other business units that were at a more mature stage and generating significant cash. By investing to become the market share leader in a rapidly growing market, the business unit could move along the experience curve and develop a cost advantage.
The four categories are: Dogs - Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash.
However, dogs are cash traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture. Question marks - Question marks are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash.
The result is a large net cash consumption. A question mark also known as a "problem child" has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines.
Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share. Stars - Stars generate large amounts of cash because of their strong relative market share, but also consume large amounts of cash because of their high growth rate; therefore the cash in each direction approximately nets out.
If a star can maintain its large market share, it will become a cash cow when the market growth rate declines. The portfolio of a diversified company always should have stars that will become the next cash cows and ensure future cash generation.
Cash cows - As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market growth rate, and thus generate more cash than they consume. Such business units should be "milked", extracting the profits and investing as little cash as possible.
Cash cows provide the cash required to turn question marks into market leaders, to cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders.What is RO Water Purifier?
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Mar 29, · The AIDAS theory of selling is one of the widest known theories and is the basis for training materials across numerous organizations.
AIDAS stands for .
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