BCG Matrix (Growth Share Matrix)

BCG Matrix (Growth Share Matrix)
Every business needs strategic planning to rule in the industry. Therefore, The Boston
Consulting Group designed product portfolio matrix (BCG matrix) or growth-share matrix to
help business with long-term strategic planning.
Definition
BCG matrix is a framework created by Boston Consulting Group to evaluate the strategic
position of the business brand portfolio and its potential. It classifies business portfolio into
four categories based on industry attractiveness (growth rate of that industry) and competitive
position (relative market share). These two dimensions reveal likely profitability of the
business portfolio in terms of cash needed to support that unit and cash generated by it. The
general purpose of the analysis is to help understand, which brands the firm should invest in
and which ones should be divested.
BCG Matrix helps business to analyse growth opportunities by reviewing the market growth
and market share of products and further help in deciding where to invest, to discontinue or
develop products. BCG Model puts each of a firm’s businesses into one of four categories.
The categories were all given remarkable names- Cash Cows, Stars, Dogs, and Question
Marks.
Relative market share. One of the dimensions used to evaluate business portfolio is relative
market share. Higher corporate’s market share results in higher cash returns. This is because a
firm that produces more, benefits from higher economies of scale and experience curve,
which results in higher profits. Nonetheless, it is worth to note that some firms may
experience the same benefits with lower production outputs and lower market share.
Market growth rate. High market growth rate means higher earnings and sometimes profits
but it also consumes lots of cash, which is used as investment to stimulate further growth.
Therefore, business units that operate in rapid growth industries are cash users and are worth
investing in only when they are expected to grow or maintain market share in the future.
The four categories are explained below with BCG Matrix diagram:
Question Marks (High Growth, Low Market Share)

These businesses represent a low market share in a high growth industry. As the name
suggests, it is difficult to say if these products will become the Stars or drop into the Dogs
category. Generally, these products are the startup or new products, which have a good
commercial prospect. Therefore, they require a huge amount of investment to gain or
maintain market share and to become a Star product. No doubt the market has growth
opportunities, but these products have not succeeded to take benefits of these market
opportunities to such an extent that they can be recognized as Stars.
Fanta, a Coca-Cola product, is one such example where the business units can be seen as a
question mark. As the brand has not been able to gain widespread popularity similar to Coke.
Therefore, the brand is losing its popularity. However, in some areas, it has been able to
obtain a generous sales volume.
Cash Cows (Low Growth, High Market Share)

Cash Cows category represents businesses having a large market share in a mature, slow-
growing industry. Businesses under this category usually follow stability strategies. Further,
these firms required little investment and generate cash that can be utilized for investment in
other business units. However, when Cash Cows lose their appeal and move towards decline,
a retrenchment policy may be followed.
Coca-Cola is one such example of Cash Cows. This product is sold across 200 countries in a
mature beverage industry. The bottling partners in different regions help in making the
finished beverages available to the market. This is how the organization is earning a
significant amount of revenues from its finished products. In a mature industry, it is advisable
for a company to keep the sales volume high as the business unit is comparatively a good
source to generate revenue.
Stars (High Growth, High Market Share)

Stars are leaders in business. These products have rapid growth and dominant market share.
However, they require heavy investment to maintain its position and its large market share.
Furthermore, Stars lead to a large amount of cash consumption and cash generation.
Therefore, an attempt should make to hold market share and to support further growth,
otherwise, a star will become a cash cow.
The bottled water Kinley, a Coca-Cola product, is one such example of Stars. This example
is suitable here because the mineral water industry is still viewed as a gradually growing
segment on an international scale. The rising population would require more bottled water to
fulfill the needs of the people. Due to the rising need for bottled water, the growth
opportunities for this business product in the industry has increased. Even though Kinley
faces competition from other competitors. Nevertheless, it is essential for the management to
understand that the bottled water brands will remain a source of significant sales in future.
Dogs (Low Growth, Low Market Share)

Dogs represent business having a low market share in a low growth market. These firms have
low market share due to poor quality, ineffective market, high cost, etc. They neither generate
cash nor require a huge amount of cash. Due to low market share, these firms face cost
disadvantages. Therefore, in such situation, managers need to decide whether the investment
currently being spent on keeping these products alive, could be spent on making something
that would be more profitable.
Diet coke, a Coca-Cola product, is on such example of Dogs. It was launched with the
motive to offer consumers relatively healthier beverage option in terms of calories consumed.
However, the brand has not been able to fetch consumers’ interest, which led to declined
sales of this business unit. The soda industry has been matured in recent years; therefore, the
growth prospects for new products are limited now.
The BCG model helps in strategic planning, but like any other marketing model, it works in
some situation and in others. It helps companies to assess which products need to be
promoted to generate revenue and which one needs to be discontinued. In short, BCG Model
gives a true picture of how marketing efforts will affect business’s overall cash flow.

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BCG Matrix (Growth Share Matrix)

Question Marks (High Growth, Low Market Share)

Cash Cows (Low Growth, High Market Share)

Stars (High Growth, High Market Share)

Dogs (Low Growth, Low Market Share)

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