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BCG Matrix

BCG Matrix Explained: How to Use and Create your BCG Matrix


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The BCG Matrix is also known as BCG Growth Share Matrix. The BCG Matrix tool and chart (originally developed by the Boston Consulting Group company) are used for developing marketing strategies and performing marketing analysis related to planning and analysis of portfolio of products and services (market offering). The portfolio of market offering analyzed with the BCG Matrix Tools is generally portfolio of products and services offered by the company and company's competitors. The BCG Matrix is also used for strategic analysis of company's SBUs or strategic business units. In both cases the purpose of the BCG Analysis or BCG Chart Matrix is to visually presents the competitive positions of all business portfolio members. The competitive position of each portfolio member is based on the following three marketing metrics:

1. Market Share

2. Market Growth Rate

3. Size or Revenue

The BCG Matrix as an effective business analysis tool can be used for the company's current situation analysis as well as forecasting, marketing planning and estimating the future developments such as potential market positioning of new products, services or SBUs in the marketplace. By using the BCG Matrix Analysis approach business and marketing managers are able to better understand the marketplace and develop effectively plans and strategies. This business analysis helps with planning and optimizing the company's current portfolio of products and services and helps managers make better decisions on how to allocate their marketing resources efficiently and effectively.

BCG Matrix Positions

The BCG Matrix uses simple and yet very powerful approach to position each portfolio memeber (product, service or SBU) into the four-quadrant BCG Matrix. The four quadrants or alternative positions are:

1. Question Marks

2. Stars

3. Cash Cows

4. Dogs

BCG Matrix - Question Marks

The portfolio member positioned in the Question Marks quadrant of the BCG Matrix has low market share compared to other portfolio members such as competitors, SBUs, products and services. At the same time the question mark member is doing business in high-growth market. The Question Mark position is typical for new products and services. This means that currently there are well established businesses in this market and new businesses try to grow and capture more market share. This market is growing and there are opportunities for new businesses and the market is becoming more competitive. At the same time there is a high risk involved with investing in this market and because of that the term Question Mark is used. Question Marks have to develop and grow and require continuous investments and competitiveness. The typical strategic scenario for Question Marks is increasing the market share by using resources / investments from the company's current Cash Cows.

BCG Matrix - Stars

Stars are the businesses, products and services with high market share compared to their competitors. Stars do business in high-growth market. Stars are market leaders. The company's successful Question Marks will hopefully grow, gain market share and will become Stars in the future (move from the BCG Matrix Question Marks Quadrant to the Stars Quadrant). Most successful and competitive business organizations have at least one Star on their BCG Matrix. Dealing with strong competition, Stars have to continuously improve their business in order to keep their leadership position in the marketplace. As long as this market is growing new Question Marks will try to capture new business. Managers should invest in order to grow revenue and gain market share and use the cash from the Cash Cows to invest.

BCG Matrix - Cash Cows

Cash Cows are SBUs, products and services generating most of the cash flows in business organizations. The market is not very attractive, the market growth rate is generally very low, but the Cash Cows have high market share compared to their competitors. This business generates a lot of cash from the Cash Cows and invests in other businesses, products and services to build a strong long-term portfolio. Since the market does not attract new players, this business does not need substantial investments to keep the market share. However, Cash Cows have to be strong, protect and keep the market share while maximizing the cash flow. Managers focus on keeping the strong market position and defend the current market share, take advantage of sales volume and leverage the size of operations to support other portfolio members.

BCG Matrix - Dogs

Dogs have very low market share and operate in low-growth market. It is unlikely that this business is very profitable and more likely Dogs are losers. Dogs do not generate substantial cash flow and have no potential to grow. Dogs need careful strategic consideration and most likely new strategy development. Potential strategies are include withdrawal from this business, selling this business, repositioning the current business and developing stronger business or optimize operations and reduce costs as much as possible. Tips for Dogs: Optimize your current operations, get rid of all current non value added activities and features. Reposition your offering to generate positive cash flow or sell this business.







                

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