Cash Cows The Cash Cows in The BCG Matrix Are The Products That Have Been On The Market For Some Time. They

The BCG Matrix is a well-known management model for analyzing a company's product portfolio.
'BCG' stands for Boston Consulting Group, a well-known consultancy company that developed the BCG
matrix in the 1970s.
BCG matrix contains the following four components:
 Stars
 Cash cows
 Dogs
 Question marks (also known as Problem Childs)
In the BCG matrix, market growth and market share of the products (or service) of a company are
compared to each other. This allows a company to determine whether they should invest in a product or
whether they should de-invest, or even stop the product altogether.
Cash cows
The cash cows in the BCG Matrix are the products that have been on the market for some time. They
have ended up in the so-called maturity stage of the product lifecycle. A product that can be classified as
a cash cow in the BCG Matrix generally has a high market share, a reasonable margin, and limited growth
or a slight decrease. The costs are low. The production line is largely recouped, and there is a limited
investment in marketing. With cash cows it is important that you as a company optimize the profit. for
example, optimize processes and thus reduce costs. An example of a product that can be classified as a
‘Cash Cow’ is the Philips energy-saving lamp.
Stars:
The stars in the BCG Matrix are products at the start of the product lifecycle. The growth and market
share are high. Because the product is at the start of the product lifecycle, the margins are usually also
high. A lot is being invested in marketing. It is important for a company to have stars. Here you can earn
big money. To get stars, for example, a company must invest in product development. If you have a star
as a company, the strategy for this product must be aimed at gaining as much market share as possible.
An example of a product that can be classified as 'Star' in the BCG Matrix is the LED lamp from Philips.
Dogs:
The dogs in the BCG Matrix are products at the end of the product lifecycle, or products that have had to
compete against the competition. The margins are low, the market share is low and the market barely
grows or even shrinks. The company will no longer invest in marketing. Many companies will choose not
to produce the product at all. An example that can be considered as a ‘Dog’ in the BCG Matrix is the
plasma TV from Philips.
Question Marks:
The question marks in the BCG Matrix are the products of which the future is not entirely certain. The
market growth is high, but the market share low. The company must make the choice: invest in
marketing, and try to make the product a 'Star', or let the product flow down to become a ‘Dog’, or in
other words stop investing and even stop the product in the future. The strategy for products that have
been designated as a question mark must either be focused on growth (to turn the product into a star) or
on cost savings (to turn the product into a cash cow). An example that can be considered as a ‘Question
mark’ in the BCG Matrix is the tablet from Philips. The market is growing very fast, but it takes a fortune
in marketing to gain a large market share in this. The question mark is sometimes referred to as 'problem
child' in other explanations about the BCG matrix.
Below a diagram in which questions are explained again about how to make a BCG matrix.
STARS: Which products or services grow the fastest and have the highest margins? You need to focus on
this and invest in it.
QUESTION MARKS Which products or services have the potential to become very large, for example
because the market is very large, but you only have a small market share? You have to choose: will it be a
dog or a star?
CASH COWS Which products or services generate a good turnover in a stable way? How can you
optimize the profit from this?
DOGS Which products or services do not grow or show a shrinkage and the market is also no longer
interesting, e.g. by competition? You must stop this!
BCG Explanation:
The BCG matrix is an excellent tool for analyzing the products or services of a company. However, you
can also use the model to determine the priority for other matters within a company. For example, you
can analyze your customer portfolio using the BCG matrix. How does this work? List all your customers,
and determine the margin and (potential) growth per customer. It will soon become clear which customers
are making real money. The customers with whom a lot of money is earned and where much growth can
be expected are your stars. Customers who do have a high turnover, but whose margins or growth are
lower, can be qualified as cash cows. Customers who can potentially generate a lot of revenue (for
example because it is a large company), but where relatively little is earned can be qualified as question
marks. You can qualify dogs that cost a lot of work, where there is little revenue, and where there is little
potential to earn. Maybe you should say goodbye to these customers and use your sales and marketing
power to get more out of the question marks and the stars. Also make sure that your cash cows are not
forgotten. Start thinking about how you can optimize the profit of these customers.
Also, don't forget to repeat this analysis once in a while. Clients that you first qualified as a question mark
and still fall into this segment after a year, you may have to qualify as dogs. Focus on customers that are
making a profit or that can achieve growth!
Limitations of BCG Matrix
The BCG Matrix produces a framework for allocating resources among different business units and
makes it possible to compare many business units at a glance. But BCG Matrix is not free from
limitations, such as-
1. BCG matrix classifies businesses as low and high, but generally businesses can be medium also.
Thus, the true nature of business may not be reflected.
2. Market is not clearly defined in this model.
3. High market share does not always lead to high profits. There are high costs also involved with
high market share.
4. Growth rate and relative market share are not the only indicators of profitability. This model
ignores and overlooks other indicators of profitability.
5. At times, dogs may help other businesses in gaining competitive advantage. They can earn even
more than cash cows sometimes.
6. This four-celled approach is considered as to be too simplistic.

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The BCG Matrix is a well-known management model for analyzing a company's product portfolio.

BCG matrix contains the following four components:

Limitations of BCG Matrix

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