What is the BCG matrix?

The BCG matrix is a tool which uses the relative market share and growth rate of the various product lines of an organization to assess the relative strength of products in a brand’s portfolio. The BCG model assigns products into four categories – Stars, Cash Cows, Question Marks, and Dogs – quickly identifying which products need attention and helps to inform their investment strategy.

This growth vs share model provides an indication of which products an organization should invest in, those they should develop, and the ones they should get rid of. The model advocates that a company milks their cows, doesn’t waste money on the dogs, invests in the stars and applies some resources to the question marks to identify if they can become stars.

The BCG matrix was developed by the Boston Consulting Group and is also known as the BCG growth-share matrix, Boston matrix, product portfolio matrix, Boston box, Boston Consulting Group analysis, or a portfolio diagram.

Why use the BCG matrix?

The BCG matrix is a simple, easy to use tool that:

  • Identifies products that are profitable now, those with potential, and those which are, or could be, a drain on resources
  • Informs resource allocation across a product portfolio

Who should use the BCG matrix?

The BGG matrix is mainly used in organizations that have more than one product competing for resources. It can inform a number of different business functions including marketing, strategy, and portfolio planning.

bcg matrix
Tips for facilitating an effective BCG analysis
  • Carefully select participants to provide expert knowledge but also a fresh perspective.
  • Use technology to involve critical people in different locations rather than miss their contribution.
  • Minimize Groupthink by brainstorming ideas individually then combining issues to get the overall picture.
  • Be specific rather than broad when defining ideas.
  • Use quantitative data where possible to focus on the crux of issue.
  • Provide adequate time in the session to rank and prioritize ideas.
  • Communicate outcomes to stakeholders and regularly update progress on actions.

BCG matrix template

The BCG matrix template plots products or product categories against two variables:

  • Relative Market Share (horizontal axis) – the higher the market share, the more cash likely being generated. This measurement reflects a brand’s competitive position and is usually expressed as their market share relative to their closest competitor.
  • Relative Market Growth (vertical axis) – products with high market growth rate usually have higher earnings but also consume lots of cash and require investment to pursue and maintain that growth. Market growth is a good indicator of industry attractiveness and gives an indication of a product’s future potential, overall market strength, and attractiveness to future competitors.

Question Marks

High Growth, Low Share

Products with low market share but in high growth industries. Often associated with emerging markets. These products:

  • have the potential to gain market share and become stars
  • may eventually become cash cows when market growth slows
  • can become dogs if they don’t succeed in becoming a market leader after a period of investment or the market growth declines.

Suggested actions: Carefully analyze to see if they’re worth investing in to increase market share. Consider investing for market penetration, market development, or product development; or divesting.

Stars

High Growth, High Share

These products have a high market share and are in a fast-growing industry. They bring in good profits and have an opportunity to expand further in a growing market. Stars help to assure the future of a company. These products:

  • are question marks that have gained market share and are improving.
  • can become cash cows as the market stabilizes.
  • may become dogs if they lose their competitive edge, and the market becomes obsolete (not uncommon in technology fields).

Suggested action: Resource to maintain market position and growth. Consider vertical or horizontal integration options, investing for market penetration, market development, or product development.

Dogs

Low Growth, Low Share

Products with low market share in a mature, slow-growing market. These products:

  • usually generate minimal profit
  • are sometimes maintained for strategic purposes e.g., they provide jobs, have synergies with other business units, or are a defense against competitors.

Suggested action: Consider eliminating these products by retrenching, divesting, or liquidating. Maintain (in special circumstances)

Cash Cows

Low Growth, High Share

Products with high market share but low growth. These products:

  • generate good profits and supply funds for future growth
  • were often stars in market which has now matured and slowed
  • don’t have many opportunities to expand as the market is growing too slowly for investment to be worthwhile.
  • might become stars with further product development.

Suggested action: Support to maintain their current market share. “Milk” while investing as little as possible. Consider investing in product development, diversifying, divesting or retrenching.

How to do a BCG analysis

The BCG matrix is based on the theory that in a natural business cycle products usually start as question marks, then become stars as the market grows. When that growth slows they become cash cows and eventually dogs. A diversified company will have products across the spectrum to ensure future growth and funding.

Market share – Estimate your market share by comparing your brand’s revenue with that of your largest competitor in the industry to get a ratio. If you are stronger, your share is greater than 1. If they are stronger, the number is less than 1. Even without exact figures, this process can still trigger valuable conversations.

Market Growth – Expressed in percentage terms. Found in industry reports or by analyzing revenue growth of leading firms

Identify Products

Identify products in the portfolio you’d like to consider.

Position

Position the products on the matrix.

Action Plan

Identify actions based on the strategic options for the BCG categorization.

Share

Share the outcomes of the session, including the action plan, with stakeholders.

Identify all brands, products, or services the organization provides.

Position each brand, product, or service on the chart based on their market share and market growth. Discuss any surprises or positioning that doesn’t make sense.

Market share – Estimate your market share by comparing your brand’s revenue with that of your largest competitor in the industry to get a ratio. If you are stronger, your share is greater than 1. If they are stronger, the number is less than 1. Even without exact figures, this process can still trigger valuable conversations.

Market Growth – Expressed in percentage terms. Found in industry reports or by analyzing revenue growth of leading firms

Agree on actions for each entry. Assign responsibility and timeframes.

At this early stage of analysis, actions may only be a broad commitment to investigate further or they might document a decisive strategy.

Examples of actions might include

  • Increase Investment in product A to increase market share
  • Maintain current strategy with Product B.
  • Decrease Investment in Brand C to maintenance levels (cash flow)
  • Sell, or stop production of, Product D.

Distribute the final report on the session with the associated action plan to the team members. Ensure all participants are clear on what needs to happen and by when. This report provides the roadmap for marketing, resourcing, and production strategies.

GroupMap automatically generates visually appealing reports and action plans in several formats for distribution, saving time and effort after the analysis.

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