A Boston Consulting Group (BCG) Matrix Model

What is the BCG Growth-Share Matrix? 

 

A management framework, the Growth-Share Matrix by Boston Consulting Group that assists businesses in managing their ventures and determining what priorities they should put first. 

 

The BCG matrix is based on a planning strategy that helps companies place their products/assets in a graphical setup, the BCG Matrix model was devised in the year 1968 by the founder of Boston Consulting Group - Bruce Henderson. 

 

Today, this matrix model is claimed to be used by Fortune 500 companies who are reputed to have the largest market cap size worldwide. In essence, the matrix tends to measure a company’s units’ value along with its other assets so as to list a particular company’s priorities, and the way it should address them strategically. 

 

Often, companies have several product lines that might or might not profit over time. Perhaps it is important for companies to recognize which product lines to discontinue, sell, or invest in so as to earn more profit. 

 

Simply put, the Growth-Share Matrix by BCG aims at offering long-term strategy plans to companies with the help of a graphical representation. 

 

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Quadrants of BCG Matrix Model

 

Until now, we have discovered that the BCG Growth-Share Matrix Model discovers long-term strategies for a company with the help of a graphical setup. 

 

This graphics setup involved 4 quadrants that divide the company’s product lines or ventures and determine its priorities in the longer run accordingly. These 4 quadrants are as follows - ‘dogs/Pets’, ‘cash cows’, ‘stars’, and ‘question marks’. 

 

These 4 quadrants are placed in such a way that they divide a larger square into 4 equal small squares. Given below is an image of the graphical setup of the BCG Matrix model. 

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BCG Matrix Model, Source

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1. Stars - High Growth, High Market Share

 

Products placed in the upper left quadrant, i.e stars are categorized to be high in growth rate and market share. 

 

With both categories qualified as high, stars in a company qualify to be the most beneficial line of products that must be continued by the company at any and every cost. 

 

Such products are usually popular among the target audiences and show a rapid growth rate over time. 

 

However, high market share can lead to more cash flow that can eventually turn a star into a cash cow. Yet, BCG Matrix star is recommended to be invested in more.

 

(Must read: Cost-benefit Analysis)

 

2. Question Marks - High Growth, Low Market Share

 

Placed in the upper right quadrant, question marks define products that have high growth rate but a low market share. 

 

That said, a question mark in bcg matrix must be analyzed closely and taken care of at regular intervals so as to check whether they are worth maintaining or not. Products qualifying as question marks are often expensive to maintain as they take up a large chunk of the company’s resources. 

 

All in all, they must not be done away with immediately. Rather, they must be closely watched so that the company can determine whether it is suitable to invest in such a product or not. 

 

3. Cash Cows - Low Growth, High Market Share

 

Placed in the lower left quadrant, cash cows in marketing refer to those products that have a relatively low growth rate but a comparatively high market share. Such products have a low growth rate but a higher market share that leads to their name ‘cash cows’. 

 

Simply put, products placed in the category of cash cows must be ‘milked’ or fuelled for as long as the company can. Even though they have a lower growth rate, they occupy a high market share which brings success to the company. 

 

For as long as possible, a company must benefit from its products placed in the cash cows in bcg matrix.

 

4. Dogs or Pets - Low Growth, Low Market Share

 

The last quadrant with dogs or pets in bcg matrix analysis symbolises a product of a particular company that has a low market share and also records a low rate of growth. If a product is placed in the dogs/pets quadrant, then the product must be sold, liquidated, or done away with. 

 

Any product line that does not bring higher returns to a company is considered to have a low rate of growth as it does not do well in the market. 

 

Perhaps, as the BCG Matrix recommends, a company must discontinue any product line that performs lowly on both parameters - market share and growth. 

 

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How does it work? 

 

With the help of these 4 quadrants, the BCG Matrix model helps a company’s market become more strategic and profit-oriented over time. 

 

In essence, this model aims to negate liabilities and bring in more assets in order to establish a company’s market leadership for sustainable returns in the long run. 

 

“By assigning each business to one of these four categories, executives could then decide where to focus their resources and capital to generate the most value, as well as where to cut their losses.”

Quadrants of BCG Matrix Model 

 

Even though this model might seem to be highly restricted to a set of factors, it broadly represents the value of a company’s products. Over time, the model helps companies to determine whether a product line is worth it or not. 

 

However, it must be noted that all products of a company will eventually become either cash cows or pets. But, pets are a strong evidence of failures and must be discontinued by companies, or else they only lead to losses. 

 

Now, let us understand the working of the BCG Matrix model with the help of an example. 

 

Coca-Cola is a multinational beverage manufacturer that was founded in the year 1886. A world-renowned beverage seller, Coca-Cola is a popular company in the FMCG sector. 

 

Be it Asia or Europe, the company’s products are very well-known among its target audience and this is the reason why it keeps measuring its products’ performances. 

 

Perhaps the application of the BCG Matrix only gave us insights that helped us understand the product value of The Coca-Cola Company. With the help of this BCG growth-share matrix example, you will understand the concept in a better manner. 

 

1. Stars - 

 

The star products of a company are defined as having a high market share and a high growth rate. Such products must be invested in and maintained throughout for increased profits in the long run. 

 

In the case of The Coca-Cola Company, the star products are Kinley Water (Asia) and Dasani Water (UK and USA). A product line of bottled mineral water, these 2 product lines have a high growth rate in the market and a high market share as well. 

 

Since bottled water is an ever-evolving domain of beverages, these two products are categorized as the stars of the company. 

 

2. Question Marks - 

 

Question Marks are products which are qualified to have a high growth rate and a low market share. 

 

Even though their profits are not categorized to be high enough, they still have potential and perhaps they must be maintained by the company until it decides to not do so. 

 

However, it must be noted that question marks must be analyzed closely since they occupy a major chunk of the company’s resources. One such product of The Coca-Cola Company is Diet Coke. 

 

Despite the company’s attempts to promote its products in light of diet-friendly beverages, Diet Coke did not do fairly well in the market. 

 

A product with a high growth rate but a low market share, Diet Coke has still not been able to gain high momentum in the market. 

 

3. Cash Cows - 

 

After analyzing the company’s products and their respective performances, it was somehow obvious that the results came out this way. Stars are defined as products with a high market share and high growth rate. 

 

Therefore, the star product of The Coca-Cola Company is Coca-Cola. The only beverage that signifies the popularity of The Coca-Cola Company, Coca-Cola is defined as a cash cow that has a high market share but a low growth rate. 

 

Over time, this product has become a cash cow since it has reached the apex of its growth rate. Still, this product must be milked by the company for as long as the company can do so. 

 

4. Pets/Dogs - 

 

Dogs in bcg matrix represent products with low market share and low growth rate. Simply put, such products are not beneficial for the company and lead to losses in the long run. 

 

In such a case, the companies are advised to discontinue such product lines and liquidate their shares. When it comes to The Coca-Cola Company, a pet in this company is Coca-Cola Life. 

 

A low-calorie product similar to Coca-Cola, Coca-Cola Life has a low growth rate and low market share. 

 

Despite the company’s regular marketing stints, this product has underperformed as per expectations and perhaps this is why it is termed as a pet. 

 

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Summing Up

 

To sum up, the BCG Growth-Share Matrix is a decision-making model for companies to establish strategies in the long run. With the help of the model’s 4 quadrants - stars, question marks, cash cows, and pets, companies devise strategies after determining profit-making products and loss-making products. 

 

Invented by Bruce Henderson, this matrix is used by most of the Fortune 500 Companies that have reported success in the long run. 

 

(Related blog: How Business Analytics impacts Decision Making in Businesses?)

 

All in all, it is an insightful model that helps businesses increase their potential and determine their performance abilities.