June 30, 2021
WHAT IS IT?
Boston Consulting Group’s growth-share matrix, popularly known as BCG matrix, is designed to help companies in portfolio management. This four-celled matrix helps companies prioritize their different businesses as a function of market share and market potential. The matrix is divided into four quadrants based on each portfolio’s market growth and relative market share, as shown in the figure.
Dogs: Products with low growth and market share
Question marks (problem child): Products in high growth markets with low market share
Stars: Products in high growth markets with high market share
Cash cows: Products in low growth markets with low market share
WHY DO IT?
BCG matrix serves as a strategic management tool that is highly relevant to larger businesses with multiple products or services. However, smaller businesses can still use BCG analysis to explore the potential of new products and to provide an overview of all their products. If the market share is small, you may base the ‘Market share’ axis on your competitors rather than the entire market.
The BCG portfolio matrix uses the logic that market leadership results in sustainable superior returns. The market leader ultimately obtains a cost advantage that sets them apart from their competition. Thus, high growth rates examined in the BCG growth-share matrix can signal which markets have the most growth potential for decision-makers to manage the product portfolios.
HOW TO DO IT?
Step 1: Identify the products or services you would like to analyze using the BCG growth matrix strategic framework.
Let’s take Google as an example for our analysis. Google has many products in their product portfolio beyond their dominant search engine, including web-based tools, advertising tools, developer tools, operating systems, mobile and desktop applications, hardware, and other assisting services.
Step 2: Analyse the expected growth rate and the relative market share to fill in the BCG matrix.
Let’s inspect each quadrant of the BCG matrix for Google’s products and services
Cash cows: Google’s advertising business is a revenue cash cow. Google’s search engine and Android OS have a high market share, but there is little scope for further market growth. Therefore, we can categorize them as Cash cows.
Stars: Stars are fast-growing market leaders who have the highest profit potential. Apps like Google Maps, YouTube, and Google assistant (for mobiles and home automation systems) are some of the stars generating large profits and demanding huge investments from Google.
Question mark products: Google Drive and Docs are examples of question mark products. There is a high market growth potential for these products, but the scope to generate profits is low due to the higher market share of their competitors.
Dog products: Hardware products like Google glass and social networking sites like Google Plus can be labelled as dog products, as they have less market growth and low market share.
Step 3: Understand the potential for each of your products and evaluate them objectively to make investment decisions. Based on the results from your BCG matrix, you can make the following decisions:
• Build – Increase investment in a product to increase its market share (e.g., Push a product in question mark quadrant to star quadrant)
• Hold – Stop investing in a product if you cannot afford further investment (e.g., Products in any of the four quadrants)
• Harvest – Decrease the investment in a product with low market growth potential (e.g., Products in the cash cow quadrant)
• Divest – Divert the investment to other products from a product that is not profitable (e.g., Terminating products in dog quadrant)
The BCG model can also be applied to areas other than product portfolio strategy. For instance, it can be applied to plan investments in marketing channels to divest the dogs or invest in the stars.
How does the BCG matrix apply to your product portfolio? Let us know in the comments below.