Definition of BCG Growth-Share Matrix
BCG matrix is a tool used by companies to evaluate their product portfolio and business units for the purpose of developing effective business strategy. BCG stand for Boston consulting group and this model was developed by Boston consulting group in early 1970’s to facilitate the organizations for managing their product and business portfolio. Large organizations that have different products or units while making strategic planning face the challenge to allocate their resources among different units.
The BCG growth-share matrix represents the various organization units on a graph. Graph consist of market growth ate versus market share of a company relative to its competitors. So the main purpose of BCG matrix to classify the products or organization units on the basis of relative market share and industry growth rate.
How an organization allocates resources to different organization units according to their situation on the BCG growth-share matrix grid shown as follows:
Cash Cows
Cash Cows are those products or business units that have a large market share in a mature and slow growing industry. Cash Cows products and units generate more cash inflow with less requirements of investment. This generated cash then can be used in other business units for further growth of organization.
Stars
Stars are business products or entities that has high market share in a rapid growing industry. Although stars generate high cash flows but on the other hand it also requires higher investment in order to meet the expenses of strong marketing campaign, distribution, Research and Development and other business operations.
Question Marks
As named suggest Question marks are the products or entities that have a small market share in a rapid growing market. If a company makes decision to further invest on Question marks it can become stars. And if companies make decision for no further investment these entities or product then falls in dog cell.
Dogs
Dogs are those products or entities which have low market share as well as low growth rate. No company wants dogs in their product portfolio as they only eat meat in the form of company’s resources or cash and having minimal cash inflows. The best thing company can do in regards of dog is to liquidate the dogs to minimize the risk.
BCG Matrix Examples & Templates
|
Products |
Market Growth |
Market Share |
Marketing share of Strong Competitors |
Relative Market Share |
|
Product No. 1 |
3% |
17% |
32% |
0.53 |
|
Product No. 2 |
6% |
22% |
13% |
1.69 |
|
Product No. 3 |
14% |
51% |
25% |
2.04 |
|
Product No. 4 |
17% |
12% |
26% |
0.46 |
|
Product No. 5 |
7% |
15% |
28% |
0.54 |
After all this above details you come to know that BCG growth share matrix provide a frame work for allocating a company’s resources among the various business units and also allows company to compare different business units in a glimpse.
Advantages and disadvantages of BCG Matrix
Advantages
- This planning tool is useful for management to compare products portfolio of four quadrants
- BCG-Matrix is useful for companies seeking volume and experienced effects
- This model is easy to understand
- It is a good starting point for management to decide for future actions
- If a company is that much capable to use experience curve as an advantages, it can either manufacture or sell new products on low price which leads them to market share leadership.
Disadvantages
- Lack of synergic effect between business units, for companies both dogs and cash cows are important for achieving completive advantage over competitors
- High market share is only a part of success factor and high market share does not leads to high profits
- This model overlooks the external factors which are very important
- Lacking a clear definition of the word “market”
- Sometimes Dogs and get you more money
- This matrix overlooks small compatriots who may have noticeable market share
