After securing funds from investors, the company needs to determine how to make the most of it. To ensure funds and resources are allocated wisely, it’s crucial to assess the performance of your products.
This is where the BCG Growth-Share Matrix comes into play. This tool helps identify which products generate profits and which might need additional investment. It provides the insights necessary to develop a strategy that maximizes profitability.
How to effectively use the BCG Growth-Share Matrix? Read on.
Understanding the BCG Matrix
The BCG Growth-Share Matrix, developed by the Boston Consulting Group (BCG), is a strategic tool for companies to make decisions about their products or business units. It was created by Alan Zakon and then improved by Bruce Henderson in 1970.
It comprises four quadrants, each featuring symbols indicating varying profitability and growth potential levels. The matrix categorizes products on two key variables: relative market share and market growth rate. Then, companies can decide which products to invest in, keep, sell, or improve.
4 Quadrants of the BCG Matrix
The BCG Growth-Share Matrix categorizes products into four categories: dogs, cash cows, stars, and question marks. Here are the characteristics of each category:
1. Stars: High Market Growth, High Market Share
The Star category is for products or business units with significant market share and high market growth. Keeping them in that position requires large investments. However, if successful, they can bring in a lot of money in the future.
Common strategies that businesses typically employ to maintain or enhance the market share of their Star include:
- Increase investments in these products or business units to preserve their market presence.
- Increasing research and development investments in the product or business unit to enhance quality and introduce new features.
- Elevating investments in marketing and promotion to boost brand awareness and attract new customers.
2. Cash Cows: Low Market Growth, High Market Share
In this category, products have a big market share but are growing little. These products or units generate a steady income and can yield significant profits because the initial development costs have already been covered.
Here’s how to make the most of Cash Cows while minimizing investments:
- Reduce investment in the product because product development costs have been paid.
- Enhance operational efficiency to maximize profits.
- Keep their market share by maintaining the quality of the product or service and fostering customer loyalty.
3. Question Marks (or Problem Children): High Market Growth, Low Market Share
This represents products or business units that hold a relatively small market share but operate in a rapidly growing market. These items demand significant investments to stay competitive, yet their potential for success remains to be determined.
Follow these strategies for their Question Marks to manage and potentially transform them into Stars or Cash Cows:
- Increase investments in research and development to enhance product quality and introduce new features.
- Boost marketing and promotional efforts to raise brand awareness and attract new customers.
- Maintain their market share by upholding product and service quality and fostering customer loyalty.
- Keep costs in check until the product or business unit attains a significant market share.
4. Dogs: Low Market Growth, Low Market Share
Products or business units with a small market share and limited growth fall into this category. They typically don’t bring in profits and need a lot of investments to maintain their market position.
Companies usually employ these strategies to handle their Dogs:
- Keep expenses in check until the product or business unit gains a significant market share.
- Scale down investments in the product or business unit since the initial development costs have been covered.
- Consider selling the product or business unit if achieving a substantial market share seems unlikely.
Using the BCG Matrix in Modern Business
Market dynamics are evolving rapidly in the current digital landscape, and digital business models are gaining fame. Thus, the BCG Matrix can undergo modifications to consider new variables such as the pace of technology adoption, innovation levels, and the capacity to swiftly adjust to shifting consumer preferences.
Furthermore, in the digital age, data has become a valuable asset. Using extensive data analysis can offer deeper insights into product or service performance, potentially influencing their positioning within the BCG Matrix.
Also, the growing importance of sustainability in business analysis must be considered. In the context of the BCG Matrix, this implies evaluating how a specific product or service aligns with a company’s sustainability objectives. For instance, products that utilize eco-friendly technology or contribute to carbon emission reduction may be prioritized.
The BCG Matrix provides a simple yet effective framework for analyzing a company’s product portfolio. It helps companies allocate resources efficiently and identify opportunities that can influence growth and profitability.
The BCG Matrix remains relevant in strategic management, especially in dynamic and competitive markets. Despite challenges in measuring growth rates and market shares, it remains a valid decision-making tool for companies.
Gust de Backer. “BCG Matrix (2023): Meaning and Example [+ Template]“
Investopedia. “Understanding the BCG Growth Share Matrix and How to Use It“