BCG Matrix: What is it, Examples, and How to Use It
When a company has many different products or even many different lines of business, strategy becomes more complex. The company not only needs to complete a situation analysis for each business, but also needs to determine which businesses warrant focus and investment. The key concepts here are “market share” (the portion of the market a product controls) and “market growth rate” (how quickly the market for that product is expanding). The Ansoff Growth Matrix allows businesses to identify potential growth opportunities and make strategic product and market expansion decisions.
Strategic Planning
The structure of the BCG Matrix strategic management what does question mark symbolize in bcg matrix is explained below. Create a comprehensive Marketing Media Kit for products identified as Stars and Cash Cows. This should include promotional materials, key messages, and media channels to effectively communicate the value of these products.
A Cash Cow is a market leader that generates more cash than it consumes. Cash Cows are business units or products with a high market share but low growth prospects. Companies are advised to invest in cash cows to maintain the current level of productivity or to “milk” the gains passively. Cash Cow Definition – Cash Cows are those business units or products that exist in low growth markets but have a high market share. These products generate a more significant amount of cash than consumed. It is advised to “milk” the gains, and invest in cash cows to maintain their current level of productivity.
It identifies which products to prioritize to increase market share, highlighting underperforming products requiring a marketing budget reallocation. Cash cows are termed as the most prosperous brands and should be “milked” to generate consistent cash flow as much as possible. These Cash flows are generally utilized to finance Stars and Question Marks to nurture their future growth. It is advised by different Financial Analysts that corporates should invest less in Cash Cows and reap the generated profits from the existing products. Even after 49 years of its establishment, the BCG matrix still remains a priceless apparatus for assisting companies in reaping the visions.
The market-growth potential is more difficult to quantify, but it’s the other important factor in the BCG matrix. Let’s use some of the products in Proctor & Gamble’s portfolio to identify markets with different growth potential. Data shows that, in the U.S. anyway, bathroom tissue use tracks closely with population numbers, which have declined 0.7 percent since 1992. Generally, markets for products that serve Americans born between 1946 and 1964—the baby boomers—are growing rapidly. The reason is that this large generation is aging with more income and a longer life expectancy that any previous generation.
Resources
Second, the market growth potential for that product or its business unit. The concept behind the BCG Matrix is to help companies with sprawling business interests quickly classify and prioritize different business lines for capital infusion or liquidation. Problem children are plotted on the growth-share matrix, along with other business units. The x-axis shows relative market share (or the ability to generate cash) and the y-axis shows the rate of market growth (or the need for cash). It helps firms evaluate their product portfolios by categorising products into four quadrants based on market growth rate and relative market share.
- Deciding whether to invest in or divest from these products is a crucial strategic choice for companies.
- By sticking to its roots of visual communication while shrewdly adapting to new trends by investing in product development, Instagram has managed to stay on top of the game.
- You could use this if reviewing a range of products, especially before starting to develop new products.
- The matrix empowers companies to decide which product to invest in, which one to develop, and which to discontinue.
- Stars absorb a considerable amount of cash and also spawn huge cash flows.
RESOURCES
The BCG growth share matrix is a business management tool that allows companies to identify which aspects of their business should be prioritized and which might be jettisoned. The business units or products with the best market share and generating the most cash are considered Stars. Monopolies and first-to-market products are frequently termed Stars too. However, because of their high growth rate, Stars consume large amounts of cash. This generally results in the same amount of money coming in that is going out.
Companies are advised to invest in Question Marks if the products have potential for growth, or to sell if they do not. Question Marks in the BCG Matrix represent products or business units with low market share in high-growth markets. These products have potential but require substantial investment to increase their market share. Deciding whether to invest in or divest from these products is a crucial strategic choice for companies. Question Marks hold low market share in fast growing markets, consuming large amounts of cash, and incurring losses.
As the name suggests, it’s not known if they will become a Star or drop into the Dog quadrant. Question Marks have the potential to gain market share and become Stars, and eventually Cash Cows when market growth slows. On the flip side, even after large amounts of investments, question marks may still not succeed in becoming a market leader, thus eventually turning into Dogs. Business models are based on providing products or services that are profitable now, but a good business strategy also asks, “What about the future? Question Marks (or Problem Children) are businesses operating with a low market share in a high growth market.
The BCG Matrix uses Relative Market Share and the Market Growth Rate to determine that. A problem child is a business with a small market share in a rapidly growing industry. The business units that make up a sizeable portion of the market and generate the most cash are considered ‘Stars’. Stars tend to consume large amounts of cash, as they require high funding to fight competitors and maintain their growth rate.
Does not provide a complete picture of success/failure
These products already have an important chunk of investments and do not demand more investments to withhold their position. If these products sustain their success until market growth rate declines, the stars may eventually become cash cows. A BCG matrix is a model used to analyze a business’s products to aid with long-term strategic planning. The matrix helps companies identify new growth opportunities and decide how they should invest for the future.