BCG Matrix is One of the Most Important Marketing Models

When it comes to consulting in corporate world - Boston Consulting Group (BCG) is one of the top companies globally they developed a 2x2 matrix to do the analysis of product portfolio of any company in 1970s which is widely taught in B Schools and used in corporate extensively. This matrix is also called BCG Analysis or Growth – Share Matrix or Product Portfolio Matrix or Boston Box. BCG Matrix has Relative Market Share [Your Firm’s Market Share divided by Your Largest Competitor’s Market Share] on one axis and Growth Rate on the other. By knowing the values of these two parameters for all the products of a company, the organizations can plan their investments at company level.

The matrix has four quadrants named as below:

  1)   Dogs: Products/Services which have small growth rate and small market shares. These are the products which are at the end of the product life cycle, these have tough completion and low margins. These products can also be called ‘me too’ category products. If the resources are limited, ideally these products / services should be removed from the portfolio.

  2)   Cash Cows: Products/Services with low growth rates but high market shares. Most of these products are the ones which have been in the market for some time and are in the maturity stage of the product life cycle. Focus in this quadrant is called milking strategy which is also referred as “milk these products as much as possible without killing the cow”.

  3)   Stars: Products/Services with high growth rate and high market shares. These are generally at the start of the product life cycle and the products in this quadrant generate highest ROI. To have many stars in the company regularly – it’s essential that the company must invest time and money in research and product development. 

  

  4)   Question Marks: Products/Services with high growth markets but low market share. These are also known as problem children. These are the products for which the future is not clear, they have high growth but low market share. The organizations must make the choice of investing resources and try to make them stars or let them become dogs which ultimately may die. These can either move to stars or drop to dogs. The future of the products from this category depends on the direction by the management as well as the potential of the product/service in the market.

Originally this matrix was developed to analyze the product portfolio but can be applied to your machines if you have many in the manufacturing unit or to your customers.

The customers from where you earn good margin and lot of growth the expected become STARS in your customer portfolio.

The customers who give you lot of revenue but low margins and have less scope for growth become your CASH COWS.

The customers who can potentially generate lot of revenue but a very less margin is expected become your QUESTION MARKS.

The customers who take lots of time to serve, we need to spend energy and resources to fulfill their orders but very little is earned and this is not expected to grow as well become your DOGS.

The DOGS category customers can be fired and the saved resources can be utilized in serving the STARS, milking the COWS or perhaps in the process to develop some more STARS in near future.

This is a pretty useful analysis to keep only the performing products or customers and filtering the loss making ones. However the businesses must understand this is a consistent endeavor and not a onetime activity to do and forget.  This must be repeated on regular intervals where the interval can be maximum a year.