The BCG matrix is a chart, created by Bruce Henderson for the Boston Consulting Group in 1968 in order to help companies to analyze their business positions based on their market share and business growth rate of different products. This helps the companies to adapt the appropriate strategies to utilize the current advantages and identify the proper product for expansion.
The BCG chart has two dimensions, one is market share and another is market growth. Both are the most important parameters to analyze the business position of any company. Based on these two dimensions, we get four categories of products with four different combinations. The main aim to find out their position in terms of market share and growth rate compared to their competitors.
The four categories are
1. Star Performers
Start performers are those having high market share and high business growth rate. The basic characteristics of this category are
High market share and high growth term them as the market leaders.
Able to generate high amount of cash from the business or high profit due to high growth and high market share
Strategy for the investor would be to hold the shares of these companies for high growth in value.
With slower growth the stars become cash cows with high market share and low growth
2. Cash Cows
Cash Cows are those having high market share and low business growth rate. The basic characteristics of this category are
They are the matured old products in the slowly growing industry but generate high amount of cash consistently
They are considered to be the leader in the respective product category
Profit is high due to high market share but lower growth in profits.
Generates high amount of cash for the company owners and shareholders, this cash can be invested in other business units of products.
Requires low investment but has to be continuous to retain the high market share
Dogs are those having low market share and low business growth rate. The basic characteristics of this category are
Low market share and low business growth rate
It ties up cash or investments which cannot be used for other business opportunities
Sometimes liquidation option is most feasible if failed to generate adequate cash to sustain the product or business
Companies aim should be to avoid or minimize the number of dogs in the company
4. Question Marks
Question marks are those having low market share and high business growth rate. The basic characteristics of this category are
Requires high investment due to high growth rate but lower cash realization because of low market share which lead to large net cash consumption
Companies should try to improve market share to keep the product alive in the market
Named question mark due to the future uncertainty because it has the potential to move to any other categories like Star, Cash Cow or dog.
All the above categories are shown in the below chart…
The BCG Matrix
BCG Matrix with Product Life Cycle
The BCG Matrix can be matched with the Product Life Cycle as well. The product life cycle should be like
Initially huge investment is required on product to gain higher market share. This stage is called “Star Stage”
Thereafter market growth becomes lower due to existing investment, but market share will continue to be higher. This stage is called “Cash Cow Stage”
Thereafter product comes in decline stage where high market growth results in lower market share, this stage is called “Question Stage”
Finally lower investment and market growth causes low market share, this stage is called “Dog Stage”
The stages are shown in the below diagram.
BCG Matrix with PLC
The BCG Matrix has the following limitations as well
Except market share and market growth, other factors are ignored in the model
There can be strategic advantage of keeping
Only a diversified company with different product categories can utilize its strengths to truly capitalize on its growth opportunities. The balanced portfolio should contain all the below products to ensure business growth
Stars whose high share and high growth to lead the future growth
Cash cows that supply funds for that future growth and other business expansions
Question marks to be converted into stars with the added funds
Like a successful FMCG company has many products available in the market and some of them are stars, cash cows and question marks. They continuously invest in new products and try to tap the new markets using the cash generated by existing successful products.