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Boston Consulting Group

Boston Consulting Group

Boston Consulting Group

Use this framework to plan a product portfolio

The Boston Consulting Group matrix (or BCG matrix) is a model for strategically planning how each product or subsidiary company within a group is performing. It is a model for use by companies with a diverse product range or an organisation with a number of subsidiary companies. The products or subsidiary companies can be positioned within the model to determine future strategy for the company.


The matrix has two dimensions. Firstly it considers the attractiveness of a market judged by its growth. The second considers each product’s market share relative to the largest competitor in the industry.


This growth/share matrix is now a central part of every business school’s curriculum on strategy offering a systematic tool for portfolio management.


Creating the BCG matrix requires a good deal of market intelligence. Data are required on the market shares of competitors of each product and on the growth opportunities.


The tool is made up of 4 squares or quadrants with relative market share along the x-axis and growth along the Y axis.

Stars

The upper right quadrant is for products of stellar performance. Products within this quadrant have a strong position in their marketplace and enjoy high growth. Not surprisingly, such products are labelled "stars". A product positioned in this quadrant could enjoy a monopoly position or it could have a significant feature or benefit that gives it an advantage over the competition. The high level of growth for such products will demand an investment in cash for stock and production but this should be more than justified. Products with a high market share are nearly always price leaders and can be highly profitable. Apple would place its iPhone in this quadrant.


Dogs

The bottom left quadrant presents the exact opposite to stars in that a product positioned here has a low market share relative to the principal competitor and growth would similarly be low. Products in this square are labelled “dogs”. They may be aged and waning and in need of a product refresh. However, this may not be justified if the market itself is static or declining.  Within the Virgin portfolio, its cola drink ultimately became a dog. It survived for 16 years in a vain attempt to win share against Pepsi and Coke in the static market for carbonated drinks. It was difficult to make a profit in this environment and it is therefore no surprise that its manufacturer, Silver Spring, entered administration in 2009.


Cash Cows

The bottom right quadrant represents products that are important within almost every portfolio. These are products with a relatively high market share though growth opportunities are low. Products in the quadrant generate cash for the business because of their strong competitive position. They are therefore “cash cows”.

As products mature within their markets, most are likely to end up in this quadrant. These products play an important supporting role for generating cash that can be invested in other products in the portfolio. They can be the most profitable products for a company and so it is useful to have a number in a portfolio. Most established companies have a number of products that have become cash cows. For Kellogg’s it is their cornflakes. I imagine that Unilever would put Marmite in this quadrant.


Question marks

The top left quadrant contains products that need support. These products have a low relative market share and a market environment promising strong growth. A product in this quadrant may be able to increase its market share and move east and become a star. However, there is uncertainty as to whether this is possible. There may be factors that inhibit the increase in market share. For this reason, products within the top left quadrant are labelled “question marks”. Such products may be newly launched, enjoying rapid sales in a growing market but still with a lowly market position.  Many of the electronics and software products that are launched would suit this label. A few will become stars while most will have a short fast life before being overtaken and fall from the sky.  The uncertainty associated with products in this group means that a company must think carefully about investing in them. They need watching vigilantly to see which direction they are taking.


BCG argues that a strong company should have a balanced portfolio. Dogs may or may not have a place in product portfolios. These apart, other products could be usefully distributed so that there are:

  • A small number of stars because their high share and high-growth secures a profitable future for the company.  Their appetite for cash is high so they shouldn’t dominate a portfolio.

  • A good number of cash cows are to be recommended if possible because they supply funds to invest in the stars and question marks that will generate growth.

  • A good number of question marks are useful so that they can be cultivated (if possible) into stars.


The BCG Matrix has gained popularity amongst strategic planners as it provides a systematic way to analyze and categorize a company's product portfolio, allowing for a quick and visual assessment of the strategic position of each product or business unit. It prompts strategic discussions and decisions by categorizing products into four quadrants: Stars, Cash Cows, Question Marks, and Dogs. Each quadrant suggests a different strategic approach, facilitating decision-making.


The matrix helps in making informed decisions about resource allocation by highlighting which products or business units require more or less investment. It guides strategic decisions on where to focus resources for maximum impact. It helps in assessing and managing risks associated with different products or business units. For example, it identifies high-growth, high-risk areas (Question Marks) and low-growth, low-risk areas (Cash Cows).


However, there are limitations to the framework. The BCG Matrix relies on just two dimensions (market growth rate and relative market share) to categorize products. This simplicity may not capture all the nuances of a complex business environment. The matrix places a significant emphasis on market share as a key determinant of success. While market share is important, other factors such as innovation, customer satisfaction, and brand strength also play crucial roles.


Also the BCG Matrix assumes a linear relationship between market share and profitability, which may not always hold true. High market share does not guarantee profitability, and low market share does not necessarily mean unprofitability. (Think of the Apple Mac which has a low market share but delivers useful profits to Apple).


The matrix may neglect market potential, focusing solely on current market conditions. A product with low current market share might still have high growth potential in an expanding market, which the matrix may not fully capture.


The matrix provides a snapshot analysis based on current market conditions. It does not consider the dynamic nature of markets and industry trends, leading to a static view that may not reflect changes over time.


Some things to think about:


  • Bear in mind the importance of a balanced portfolio for your products and brands. A good number of “question marks” are needed in the hope that one or more will become “stars”. However, they are a drain on finances and are the reason why cash cows are so important to provide the necessary funding for future growth.

  • If it is difficult to place products/SBUs in the BCG matrix, consider using the Directional Policy Matrix (see https://www.b2bframeworks.com/frameworks/directional-policy-matrix).

  • Another framework that has some similarities to the Bost Matrix is the ADL Matrix. Take a look on https://www.b2bframeworks.com/frameworks/adl-matrix


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