IB Business Management SLTopic 6 — The Toolkit in PracticePaper 1 & 2Exam skill~13 min read
Applying the BCG Matrix and Decision Trees
These two tools are often examined together because they answer different halves of the same question. The BCG matrix tells you which products are worth spending money on. A decision tree tells you which of two ways of spending it gives the better return. Neither one makes the decision for you, and saying so is where the top marks are.
📚 What you need to know
Classify a product with both figures: its market share and the growth of its market.
A healthy portfolio has products in several boxes, because cash cows fund question marks.
Expected value = (success × probability) + (failure × probability), then subtract the cost if the tree shows revenues.
Choose the higher expected value on financial grounds, then discuss what the numbers ignore.
Both tools rest on estimates. Different managers looking at the same data will reach different judgements.
Avoid assumptions the data does not support — they mislead whoever reads the analysis.
The case study
Larkhill Games designs board games and mobile games. Its four products and their market positions are shown below. Its net profit last year was $9.4m and it has $6m available to invest.
Product
Its market share
Market growth
Notes from the case
Mobile puzzle game
26%
+21% a year
Needs constant content updates to hold players
Classic board game
34%
+1% a year
Sold for 22 years, low marketing spend
Card expansion pack
5%
+16% a year
Launched last year, sold only online
Handheld puzzle unit
2%
−9% a year
Retailers are dropping the category
Larkhill must now choose between two ways of using its $6m: spending $2m promoting the mobile puzzle game in its existing market, or spending $5m launching it in a new region. The decision tree below shows the estimated revenues.
Both branches from each circle add to 1. Check that before you calculate anything — occasionally a question tests exactly this.
The questions, with model answers
(a)
Define the term “product portfolio”. [2]
Answer
A product portfolio is the complete range of goods and services a business sells ✓
and currently makes available to its customers. ✓precise, uses the right terminology, and stops.
(b)
Using the BCG matrix, classify Larkhill’s four products. [4]
Mobile puzzle game
High share (26%) in a market growing 21% → starClassic board game
High share (34%) in a market growing only 1% → cash cowCard expansion pack
Low share (5%) in a market growing 16% → question markHandheld puzzle unit
Low share (2%) in a market shrinking 9% → dogquote both figures each time. One number never justifies a box.
(c)
Use the decision tree to calculate the expected value of each option. [4]
Option B — promote the game($5m × 0.75) + ($1m × 0.25) = $3.75m + $0.25m = $4m$4m − $2m costExpected value = $2mOption C — launch in a new region($14m × 0.5) + ($2m × 0.5) = $7m + $1m = $8m$8m − $5m costExpected value = $3mOn financial grounds
The regional launch has the higher expected value, so Larkhill should choose option C.
subtracting the cost is the step that separates full marks from half.
(d)
Recommend how Larkhill Games should invest its $6m. [10]
Paragraph 1 — define and place the products
The BCG matrix sorts products by market share and market growth. Larkhill has one star, one cash cow, one question mark and one dog, which is a reasonably balanced portfolio.
Paragraph 2 — first recommendation, balanced
The regional launch has the higher expected value at $3m against $2m, and the mobile game is a star with 26% of a market growing 21% a year, so the money follows the strongest product. However, the success probability is only 0.5 — effectively a coin flip — and failure would leave Larkhill $3m down against last year’s $9.4m profit.
Paragraph 3 — second recommendation, balanced
Promoting in the existing market is far safer at 0.75, and the smaller $2m outlay would leave $4m for the card expansion pack, a question mark in a market growing 16% that currently sells only online. But holding back may let rivals reach the new region first in a market growing this fast.
Paragraph 4 — what to protect and what to cut
The classic board game needs only enough spending to hold its 34% share, and the handheld unit, at 2% in a market shrinking 9% with retailers dropping the category, should be withdrawn to free up shelf space and management time.
Paragraph 5 — conclusion with limitations
A split fits best: fund the regional launch from the $6m and use the remainder to keep the star updated, since the case says it needs constant content. That said, the case study does not give the size of the new region, or where the 0.5 probability came from, and expected values ignore the damage a failed launch would do to a brand built over 22 years.
the last sentence attacks the tool itself, which is exactly what “substantiation” means.
Analysis does not live inside the tools. A BCG matrix and a decision tree only present data in a useful shape. The analysis is what a manager does afterwards — and two managers with the same diagram can reach opposite conclusions.
💡 Exam tip
Do the calculation first, then write the essay around it. The numbers are your evidence.
Comment on the probabilities themselves. A 0.5 estimate is a coin flip and deserves saying so.
Use the profit figure to judge whether the firm can absorb a failure.
Recommend a mix where the case allows it — portfolios need both current earnings and future ones.
Say what a dog is doing for the business before dropping it. Some support other sales.
Name the tool’s blind spot: BCG ignores margins and market size; trees ignore everything qualitative.
⚠ Common mix-up
Forgetting to subtract the cost when the tree shows revenue.
Classifying by share alone. 34% means nothing until you know the market is barely growing.
Treating the expected value as guaranteed money. Larkhill will get $14m or $2m, never $3m.
Recommending everything. $6m does not stretch to all four products.
Ignoring the dog. Saying nothing about it wastes an easy point.
Assuming a bigger expected value settles it. Risk, cash and brand all still matter.
Up next: Applying Business Plans and Descriptive Statistics — the last of the toolkit case studies, and the one with the most calculating in it.
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