Business Portfolio: The Growth-Share Matrix

Business Portfolio
A business portfolio is a company’s set of investments, holdings, products, businesses and brands.
Marketing managers attempt to make a product appeal to specific groups of people, called segments. Examples of
segments may be college graduates, baby boomers living Philadelphia or blue-collar workers.
This portfolio helps companies grow financially.
The Growth-Share Matrix

The growth-share matrix developed by the Boston Consulting Group may be applied this portfolio. The growth share matrix
places business holdings or markets in one of four categories: star, cash cow, question mark and dog. The categories depend
on two variables: the size or share of the market segments, and the growth in sales of the product or business. Stars are high-
growth, high-share businesses or markets. Cash cows are low-growth with high shares. Question marks are high-growth with
low market shares. Dogs are low-growth and low-share.
How to Create a BCG Model

The easiest way to understand the BCG matrix is to actually create one, and to do that you'll need information on the growth
rate and market share of your products or services. Examine your sales over a year or a quarter, and compare that against the
revenue the entire market is acquiring.
BCG matrix is a four-quadrant matrix in your matrix, write "Rate of Market Growth" along the vertical axis running from
low at the bottom to high at the top. The horizontal line is "Relative Market Share," running from low on the left to high on
the right. You can now split your chart into four quadrants. These are designated:
 Cash Cows (lower left quadrant).
 Stars (upper left quadrant).
 Dogs (lower right quadrant).
 Question Marks (upper right quadrant).
Place your products and services in the relevant quadrant based on their relative status in growth and market share.
What Do the Four Quadrants of the BCG Matrix Mean?

The BCG model assumes that relative market share of a product is an indicator of its cash generation potential. A product with
a high market shares typically has a high cash return, and it also has a strong brand position relative to its major competitors.
These features are indicators of future success.
The market growth rate is an indicator for cash outflows. A high growth rate means a product is earning well but these
products normally require a large injection of cash to stimulate future growth. You're getting nice growth but at a cost. Setting
these numbers against each other gives a better indicator of the product's viability than measuring cash flow generation
alone.
What you end up with, are four scenarios with respect to the market share of the business, cash flow generation and growth
rate of the industry in which the business is operating. Each of the four quadrants has a specific meaning. Here's the
breakdown:
Cash Cows
Cash cow products are your market leaders. These products sit in the bottom right quadrant of your matrix and generate
more revenues than they consume. Under normal conditions, a business will aspire to carrying as many cash cows as possible
since these products provide the cash you need to invest in marketing, cover the operating costs of the business, fund product
development and pay down debt.
To continue the cow analogy, businesses are advised to "milk" their cash cows by extracting the profit from them while
investing as little into them as possible. Ideally, you will use your cash cows to generate passive gains for your business.
Maintaining a healthy supply of these products means you have the cash you need to act upon the next market trend.
Stars
The products in the upper right quadrant of your matrix have the best market share and bring the most cash into your
business. First-to-market products often fall into this category, and these products are considered stars. While stars generate
a lot of revenue because of their strong relative market share, they also gobble up investment dollars because of their high
growth rate. All things being equal, this results in the same cash coming in that is going out.
Sustaining a neutral cash flow is not an ideal position for the business to be in; you want to move to a position where the stars
bring in more revenues than they take out. Companies are usually advised to prioritize their stars. These products have the
potential to become cash cows if they sustain their cash generation until the growth rate levels out.
Question Marks
Question marks have a low relative market share and a high growth rate, meaning they have the potential to grow rapidly if
you invest large amounts of cash into them. At the moment though, they are returning very little compared to the investment
you're making. Ultimately, a question mark will go one of two ways:
 It will become a dog and lose money, in which case you should probably abandon this product; or,
 It will turn into a star, and then into a cash cow as market share grows.
Question marks require careful analysis to decide if they are worth the further investment. Products with growth potential
may warrant a cash injection; dead-in-the-water products do not.
Dogs
The final category belongs to your dogs which have an underwhelming market share and growth rate. These products neither
generate nor consume a large amount of cash — sometimes they will lose money but frequently, they will break even. Dogs
are often referred to as cash traps because the business has money tied up them, even though they have little potential for
growth. Businesses are usually advised to dispose of these products.
How to Use the BCG Matrix in Marketing Strategy

The BCG matrix is an analysis tool; the idea is to give yourself a clear picture of where your products currently sit so you can
decide what to do with them. Some of the tactics you might adopt include:
 Hold: Leave the product where it is in its current quadrant. This option is viable for cash cows and when the marketing budget
is small.
 Build: Invest more money in a product's marketing to boost its market share. A strong marketing campaign has the potential to
move question marks into the star quadrant and stars into cash cows.
 Harvest: For cash cows, it may be sensible to cut your investment and harvest the maximum revenues from the product. This
increases its overall profitability.
 Dispose: Divest the business of failing products (dogs) and release the money that's tied up in them.

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Business Portfolio

The Growth-Share Matrix

How to Create a BCG Model

What Do the Four Quadrants of the BCG Matrix Mean?

How to Use the BCG Matrix in Marketing Strategy

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