The BCG matrix (also known as Boston Matrix) is a marketing model that helps businesses structure their long term strategic planning. It looks into the firm’s product portfolio and respectively identifies the main growth opportunities out there. The BCG matrix is compromised by four quadrants which are determined by the relative market share and the market growth rate. ‘Market share’ measures whether the product has a high or low market share while ‘Market growth rate’ measures the number of potential customers and growth of the market.
Products in this quadrant carry a low market growth rate and a low relative market share. This means that they are situated in an unattractive, low growth market which in turn makes them unworthy of investing. It is advised that dogs are removed from a firm’s product portfolio.
2. Question Marks
Another quadrant in the BCG matrix is the ‘Question Mark’ and is compromised by products with a low market share, but yet operating in high growth markets. As its name implies, ‘Question Mark’ can either downgrade to ‘Dogs’ or alternatively upgrade to a ‘Star’. In order for the products in this category to grow, significant investment is required.
3. Cash Cow
Products in the ‘Cash Cow’ quadrant are well-established products in the market that require very little investment. They have a low growth rate with a high market share and have one simple rule – “Milk the cow without killing it”. These are the products that will bring in the profits needed for investing in the ‘Stars’
These are the products with a high market share in a high-growth market, and have a high potential of providing exponential profits in the future. It is advised that significant and ongoing investment is provided in order to sustain and feed more growth to this segment. ‘Stars’ are capable of generating more ROI than other categories.
BCG Matrix: Advantages
The Boston Matrix is a very simplistic tool to use and can provide many advantages towards to the strategic analysis of your organization. Some of the most noted advantages include the objective assessment of opportunities according to the characteristics of each product group, and the identification of any relative threats that could harm your organization if no response action is taken.
BCG Matrix: Considerations
Yet, it is important to also consider the potential disadvantages of the model. Firstly, the dimension ’Market growth rate’ may not accurately define the attractiveness of the market which causes an alarm to the applicability of the model in certain cases. Also, the model assesses the current situation and neglects to consider the future. On this note, it does not also take into consideration any external factors
On an overall note, the BCG matrix is an important tool for examining the product portfolio of a business according to the market share and growth rate in that market. These insights can be in turn used to make the correct decisions regarding the right portfolio mix, such as introducing new products or delisting others. In order to avoid any potential disadvantages of the model, it is advised that the BCG matrix is used in conjunction with other models that examine the external factors of the market, such as the PESTLE analysis.