The BCG Matrix was initially sketched by Alan Zakon, a senior executive at BCG, and was later refined by Bruce Henderson, the founder of BCG, in his 1970 essay The Product Portfolio.
The BCG Matrix gained widespread use during the 1970s and was adopted by many Fortune 500 companies to manage diversification.
The BCG Matrix is still widely used today, although modern business dynamics have introduced new complexities that the traditional matrix did not fully account for.
What is the BCG Matrix?
The BCG Matrix, also known as the Growth-Share Matrix, is a strategic framework developed by the Boston Consulting Group in 1970.
It helps firms evaluate their product portfolios by categorising products into four quadrants based on market growth rate and relative market share.
The matrix offers guidance on where firms should invest, divest, or maintain, and how they can best allocate resources across their product lines.
A Guide to the BCG Matrix
Market Growth
Traditional View:
The market growth rate refers to how attractive a market is in terms of expansion opportunities.
High-growth markets offer potential for revenue growth, while low-growth markets often represent maturity or saturation.
Traditionally, companies invested heavily in high-growth markets and maintained profitability with minimal investment in low-growth markets.
Contemporary View:
In today’s business landscape, high-growth markets are more volatile and susceptible to disruption.
Rapid technological shifts and shorter product lifecycles often complicate long-term investment strategies.
For digital sectors, growth cycles are shorter, and companies must continuously adapt to remain competitive.
Key considerations:
- Volatility: High-growth markets are more vulnerable to economic fluctuations and technological advancements.
- Short product lifecycles: Digital products often experience faster saturation.
- Disruptive technologies: Technological innovations can rapidly change the market landscape
Market Share
Traditional View:
Relative market share measures a product’s competitive strength compared to its largest rival.
Higher market share traditionally correlates with competitive advantages like economies of scale and increased profitability.
Products with low market share typically require substantial investment to become competitive.
Contemporary View:
In today’s service-based and digital sectors, market share is not always the best measure of success.
For example, network effects, customer retention, and recurring revenue models often hold more importance than traditional market dominance.
Smaller, agile organisations can outcompete larger players by focusing on customer experience and innovation.
Key considerations:
- Network effects: In digital industries, user engagement and network growth often outweigh traditional market share.
- Scalability: Digital products can achieve rapid growth without high market share.
- Recurring revenue: Subscription business models focus on customer retention rather than market dominance
The Four Sections of the BCG Matrix
BCG Matrix: Cash Cows (High Market Share, Low Growth)
Traditional View:
Cash Cows are products with high market share in low-growth or mature markets. These products generate reliable cash flow with minimal investment, as competition is limited. Firms often use profits from Cash Cows to fund investments in Stars or Question Marks.
Contemporary Insights:
While Cash Cows continue to be valuable for maintaining financial stability, firms today also use them to drive innovation and diversify product offerings.
Markets evolve and so firms need to regularly reassess their relevance and explore incremental improvements or new customer segments.
Strategic Decisions:
- Maximise profitability: Focus on cost-efficiency to sustain cash flow.
- Invest in innovation: Use steady cash flow to fund innovation or enter adjacent markets.
- Diversify product lines: Extend product offerings to maintain customer interest.
Example: Procter & Gamble’s Pampers brand generates significant cash flow, allowing the company to invest in developing new products.
BCG Matrix: Dogs (Low Market Share, Low Growth)
Traditional View:
Dogs are products with low market share and limited growth potential. These products often underperform financially, generating little to no profit. Traditionally, companies divested Dogs to redirect resources to more promising ventures.
Financial Perspective:
From a financial standpoint, Dogs contribute minimally to revenue and may generate losses. Maintaining Dogs ties up capital and resources that could be better deployed elsewhere.
Companies that divest Dogs can improve profitability by reducing overhead costs and reallocating resources to higher-growth areas.
Contemporary Insights:
Some Dogs can still offer strategic value, especially in niche markets. These products might provide customer insights, create synergies with other units, or generate steady, if modest, revenue. Firms should weigh up these benefits against the financial strain these products impose.
Strategic Decisions:
- Divest or exit: Most Dogs should be divested to free up resources for more promising products.
- Reposition for niche markets: Dogs may succeed in smaller, specialised markets with less competition.
- Reduce costs: Implement cost-cutting measures to minimise the financial burden.
Example: Apple’s iPad is now considered a Dog, yet Apple continues to produce it for a loyal customer base.
BCG Matrix: Question Marks (Low Market Share, High Growth)
Traditional View:
Question Marks are products with low market share in high-growth markets. They require substantial investment to increase market share, with the potential to become Stars. However, if they fail to gain traction, they risk becoming Dogs(Boston Consulting Group…).
Contemporary Insights:
In the digital economy, Question Marks face more risk due to rapid changes in consumer preferences and technology.
Firms can employ agile methodologies to test the viability of a product before fully committing resources which reduces the risk of over investing in the early stages of development.
Strategic Decisions:
- Invest selectively: Carefully assess potential before committing significant resources to growing market share.
- Test and iterate: Use agile approaches to validate market demand.
- Divest early: Exit the market if growth prospects are weak(Understanding the BCG G…)(Boston Consulting Group…).
Example: Apple TV remains a Question Mark, with Apple investing heavily in content while competing against dominant players like Netflix(What Is the Growth Shar…).
BCG Matrix: Stars (High Market Share, High Growth)
Traditional View:
Stars are products with high market share in high-growth markets. These products often require substantial investment to maintain their leadership positions but have the highest potential for growth. Stars are key drivers of future revenue and, as the market matures, often transition into Cash Cows(Boston Consulting Group…).
Contemporary Insights:
In tech-driven markets, Stars face constant competition and shorter product life cycles. Companies must continuously innovate to maintain their market leadership. Agility and a deep understanding of consumer trends are essential to maintaining a Star’s status.
Strategic Decisions:
- Sustain high investment: Continue investing in growth to maintain leadership.
- Explore integration opportunities: Use vertical or horizontal integration to strengthen market position.
- Prepare for market maturation: Plan for the product’s transition into a Cash Cow as the market matures.
Example: The iPhone remains Apple’s Star, commanding high market share and driving significant revenue, while Apple invests in R&D to maintain its competitive edge.
BCG Matrix Example
The BCG Model is based on products rather than services, however, it does apply to both. You could use this if reviewing a range of products, especially before starting to develop new products.
Looking at the British retailer, Marks & Spencer, they have a wide range of products and many different lines. We can identify every element of the BCG matrix across their ranges:
- Stars
Example: Lingerie. M&S was known as the place for ladies underwear at a time when choice was limited. In a multi-channel environment, M&S lingerie is still the UK’s market leader with high growth and high market share.
- Question Marks/Problem Child
Example: Food. For years M&S refused to consider food and today has over 400 Simply Food stores across the UK. Whilst not a major supermarket, M&S Simply Food has a following which demonstrates high growth and low market share.
- Cash Cows
Example: Classic range. Low growth and high market share, the M&S Classic range has strong supporters.
- Dogs
Example: Autograph range. A premium-priced range of men’s and women’s clothing, with low market share and low growth. Although placed in the dog category, the premium pricing means that it makes a financial contribution to the company.
Conclusion: Strategic Importance of the BCG Matrix
You can also apply the BCG model to areas other than your product strategy.
For example, I developed this matrix as an example of how a brand might evaluate its investment in various marketing channels.
The medium is different, but the strategy remains the same – milk the cows, don’t waste money on the dogs, invest in the stars and give the question marks some experimental funds to see if they can become stars.
Whether you’re strategising for growth or assessing performance, these ready-to-use templates will help you visualise your company’s market position and make informed decisions.
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