BCG Matrix Model

Introduction
The Boston Consulting Group (BCG) matrix or also called BCG model is a portfolio planning method
developed by Boston Consulting Group, a leading management consulting firm.

The purpose of strategic planning is to find ways in which the company can best use its strengths to
take advantage of attractive opportunities in the environment. Most standard portfolio analysis
methods (including the BCG matrix) evaluate the product on two important dimensions: the
attractiveness of the product’s market or industry (market growth) and the strength of the product
position in that market or industry (market share).

When should I use the BCG matrix model?

In general, a company should maintain a balanced portfolio of products. Having a balanced product
portfolio includes both high-growth products as well as low-growth products.

A high-growth product is for example a new one that we are trying to get to some market. It takes
some effort and resources to market it, to build distribution channels, and to build sales
infrastructure, but it is a product that is expected to bring the gold in the future. An example of this
product would be a 3D printer.

A low-growth product is for example an established product known by the market. Characteristics of
this product do not change much, customers know what they are getting, and the price does not
change much either. This product has only limited budget for marketing. This is the milking cow that
brings in the constant flow of cash. An example of this product would be regular Colgate toothpaste.

The BCG matrix also helps in answering these questions about your products:

1. How do we classify what we sell?

2. Where does each of our products fit into our product mix?
3. Should we promote one product more than the other one?
4. Given our limited resources, which product should we place more emphasis in?

What is the BCG matrix and how does the BCG model work?
Placing products in the BCG matrix results in 4 categories in a portfolio of a company:

BCG STARS (high growth, high market share)

- Stars are defined by having high market share in a growing market.

- Stars are the leaders in the business but still need a lot of support for promotion a placement.
- If market share is kept, Stars are likely to grow into cash cows.
BCG QUESTION MARKS (high growth, low market share)

- These products are in growing markets but have low market share.
- Question marks are essentially new products where buyers have yet to discover them.
- The marketing strategy is to get markets to adopt these products.
- Question marks have high demands and low returns due to low market share.
- These products need to increase their market share quickly or they become dogs.
- The best way to handle Question marks is to either invest heavily in them to gain market share or
to sell them.

BCG CASH COWS (low growth, high market share)

- Cash cows are in a position of high market share in a mature market.

- If competitive advantage has been achieved, cash cows have high profit margins and generate a lot
of cash flow.
- Because of the low growth, promotion and placement investments in cash cows are low.
- Investments into supporting infrastructure can improve efficiency and increase cash flow more.
- Cash cows are the products that businesses strive for.

BCG DOGS (low growth, low market share)

- Dogs are in low growth markets and have low market share.
- Dogs should be avoided and minimized.
- Expensive turn-around plans usually do not help.
BCG Matrix and Cash Flow
B.C.G. Analysis is a technique used in brand marketing and product management to help a company
decide what products) to add to its product portfolio. It involves rating products according to their
market share and market growth rate. The products are then plotted on a two dimensional map.
Products with high market share but low growth are referred to as "cash cows". Products with high
market share and high growth are referred to as "stars". Products with low market share and low
growth are referred to as "dogs" and should usually be discontinued. Products with low market
share but high growth are referred to as "question marks".

Each circle represents a product or brand. The size of the circle indicates its dollar sales volume. A
"question mark" has the potential to become a "star" in the future if it is developed. A company
should have a balanced portfolio. This implies having at least one "cash cow" which can generate
revenue that can be used to develop one or more "question mark". This process, referred to as
"milking your cash cow", is shown in the next diagram where the arrows represent cash flows.

High

Company’s Bills Star Question mark

1. Salary

2. Utilities
Market Growth

3. Rental

4. Overheads

5. Miscellaneous

Cash Cow Dog

Low
High Market Share Low

= Dollar Sales Volume of a product (the bigger the higher sales volume)

= Cash flow

Dog
 Ensure that they can generate enough cash flow to maintain themselves.
 Alternatively companies can liquidate them
 BCG strategy : divest

Question Mark
 Requires a lot of cash to defend their market share, let alone increase it.
 High growth requires cash to support it, but the Question Marks have difficulty generating
cash because of their low share.
  May require cash from Cash Cow to build them into future Stars. Alternatively it can be
phased out if it does not do well.
 BCG strategy : build

Star
 Often requires to maintain the level of heavy investment to finance their rapid growth
 Sales and profit made often needs to be reinvested in themselves
 Sometimes needs additional cash from Cash Cow
 BCG strategy : hold

Cash Cow
 Need less investment to hold their market share
 Harvested by the company as it produces a lot of cash that the company can use to pay its
bills and support other product that need investment
 BCG strategy : harvest

Limitations of BCG Matrix

• The first problem can be how we define market and how we get data about market share
• A high market share does not necessarily lead to profitability at all times
• The model employs only two dimensions – market share and product or service growth rate
• Low share or niche businesses can be profitable too (some Dogs can be more profitable than
Cash Cows)
• The model does not reflect growth rates of the overall market
• The model neglects the effects of synergy between business units
• Market growth is not the only indicator for attractiveness of a market
• There are probably even more aspects that need to be considered in a particular use of the BCG
model.

Source:

 Kotler, P., & Armstrong, G. (2012). Principles of Marketing (14th Ed.) (Chapter 2, pp 66-68).
Singapore : Pearson
 BCG Matrix Model (n.d.). Retrieved Apr 20, 2020, from maxi-pedia.com website:
http://www.maxi-pedia.com/BCG+matrix+model