The BCG matrix

The growth and development of marketing as an ideology have covered tremendous ground over the past few decades. Marketing theory has seen many new developments in recent years, and with an increasing number of people becoming interested in pursuing marketing as an academic subject, the future for resource development is bright in this area.

As more experts continue to weigh in on marketing as a school of thought, the resources for companies interested in analysing their market share and honing their market strategy continue to grow. Among these, the BCG matrix, also known as the Growth Share matrix, is one such framework that many companies continue to rely on to this day.

In this chapter, we’ll break down the BCG matrix and see how companies can use it analyze the current and the future competitive landscape of their industry, and then plan their marketing strategies accordingly.

What is the BCG matrix?

The BCG matrix is a framework developed by the Boston Consulting Group (hence the name BCG). It is also known as the Growth Share matrix, as we mentioned earlier in this chapter. The matrix is designed to help companies get better at strategic planning over the long term. It also makes it possible for companies - and practically, any other kind of businesses as well - to review their product portfolio, identify the areas in which they need to invest and make decisions about developing new products or discontinuing old ones.

The BCG matrix has a history that goes back over five decades, as of 2021. Way back in 1968, Bruce Henderson, who had founded the Boston Consulting Group five years earlier, created this matrix. Over the years, it gained tremendous popularity with companies and businesses trying to up their marketing game. In fact, at the peak of its success, around 50% of the Fortune 500 companies relied on the matrix. Even today, it continues to be a reliable framework for businesses and remains a central ideology in business school curriculums.

But what is the matrix like, anyway? If that’s what you’ve been wondering about, here are the details. The BCG matrix is divided into 4 quadrants. Each quadrant represents a specific element, and each element comes with a different level of market growth rate and market share.

Let’s look at the quadrants first before decoding each quadrant.

As you can see from the picture above, there are 4 categories of products according to the BCG matrix. They are ranked according to their market growth rate and their relative market share.

• Stars: These are products that have a high market share and also enjoy a high growth rate.
• Cash cows: The products in this segment possess a high market share, but witness low market growth.
• Question marks: Products that see a high market growth rate, but possess a low market share are categorised as question marks or problem child products.
• Dogs: These are products that have low market growth rate and low market share.

How does the matrix work?

The BCG matrix works by plotting market growth against market share - which is why its alternate name is the Growth Share matrix. As we’ve seen above, all the products manufactured or distributed by a business can be classified as stars, cash cows, question marks or dogs (also referred to as pets).

Essentially, the matrix measures the company competitiveness and the market attractiveness of the products in question. Once the products have all been categorized according to their market growth rate and market share, companies can take the actions necessary. What are those actions? Well, that’s just what we’re going to discuss in the following section, where we’ll break down the components of the BCG matrix.

The components of the BCG matrix explained

So, there are four components of the matrix: stars, cash cows, question marks and dogs/pets. How should companies and businesses deal with each of these categories? Let's find out.

1. STARS: High growth + High market share

These products have the highest market share and generate the highest amount of cash/returns. Here are some common features of the products that qualify as ‘stars.’

• They have the potential to be market leaders.
• Typically, the products that are either monopolies or the first to be marketed in a specific niche end up in this category. 
• But given how rapidly they grow, these products also require massive amounts of consistent investment to sustain their growth.
• So, with large amounts of cash going in as well as huge amounts of cash being generated, the net cash flow is typically modest.

What should businesses do with ‘stars?’

Companies and other businesses should focus on investing in the products in this category. These products have a high potential for future growth, and if successful, they could become cash cows.

2. CASH COWS: Low growth + High market share

When successful, star products may migrate into this category. These products have high market shares, but low growth prospects. Here are the defining features of cash cows.

• These products are generally well-established goods.
• Since they already have an established market, they do not require huge amounts of investment. 
• They generate more cash than they consume, thereby making the net cash flow highly positive. 

What should businesses do with cash cows?’

Businesses should invest in these products to ensure that they continue to remain profitable for as long as feasible. This way, they can generate enough surplus cash to reinvest in other areas of the business.

3. QUESTION MARKS: High growth + Low market share

These products are located in an industry or segment that offers a high potential for growth, but nevertheless, possess a low market share. The future of these products is truly unclear - a veritable question mark. This is why the category is named as such. Check out the main characteristics of these products.

• These products could either grow into the star quadrant or drop into the dog quadrant.
• To make them star products, they require significant amounts of investment. 
• Despite consuming huge amounts of cash, they do not bring in significant returns.
• The net cash flow is low, and could even be negative.

What should businesses do with ‘question marks?’

If the products in question possess significant chances of growth and are likely to gain market share, companies can invest in them to push them into the star category. Otherwise, it may be ideal to adopt a retrenchment strategy or sell off these product lines.

4. DOGS: Low growth + Low market share

Dogs are the opposite of stars. They do not possess any growth prospects, nor do they have any significant market share. These are the typical characteristics of the products in this category.

• They do not consume huge amounts of cash.
• However, they often do not bring any returns. Or, in some cases, they may offer only low returns.
• This makes the net cash flow nearabout zero, since these products basically break even.

What should businesses do with ‘dogs?’

Businesses are advised to remove any products in the dogs/pets category, because they are cash traps. Left unchecked, they could drain the resources of the company over time. It is best to divest in this case.

The BCG matrix: A couple of examples

To better understand how the BCG matrix helps identify where the products in a company’s product mix stand, we’ll take up a couple of examples and sort things out.

The BCG matrix of Amul

Amul has a variety of products ranging from Amul milk to Amul pizza. Which of these are in demand, which of these are rising in popularity and which of these are, well, unpopular? Let’s sort the products into the four quadrants to find out.

The BCG matrix of Apple

Moving on to the international scene, let’s take a look at how Apple’s products fare in the face of the BCG matrix classification.

The limitations of the BCG matrix

Despite its extensive coverage, the BCG matrix, like any other resource, does possess its own set of limitations. Here’s a closer look at some of the top limitations of this matrix.

• The Growth Share matrix only recognizes high and low market growth and market share. It also needs to account for medium levels of these parameters.
• While the growth rate and the market share are among the key indicators of probability, they are far from the only metrics that identify the profitability of a product.
• The idea of the market is not clearly defined in this concept.

Wrapping up

This gives you all the details of the BCG matrix and how it helps companies. As a fun little activity, you could try and take up some companies of your choice and sort their products into the four quadrants. It could be engaging, and you could learn some new things about your favourite and not-so-favourite products in the process.

A quick recap

• The BCG matrix is a framework developed by the Boston Consulting Group (hence the name BCG). It is also known as the Growth Share matrix.
• It is divided into 4 quadrants. Each quadrant represents a specific element, and each element comes with a different level of market growth rate and market share. 
• The BCG matrix works by plotting market growth against market share - which is why its alternate name is the Growth Share matrix. 
• There are four components of the matrix: stars, cash cows, question marks and dogs/pets.
• Stars are products that have a high market share and also enjoy a high growth rate. Companies and other businesses should focus on investing in the products in this category.
• The products in the cash cow segment possess a high market share, but witness low market growth. Businesses should invest in these products to ensure that they continue to remain profitable for as long as feasible.
• Products that see a high market growth rate, but possess a low market share are categorised as question marks or problem child products.
• If the products in question possess significant chances of growth and are likely to gain market share, companies can invest in them to push them into the star category. Otherwise, it may be ideal to adopt a retrenchment strategy or sell off these product lines.
• Dogs/pets are products that have low market growth rate and low market share. Businesses are advised to remove any products in the dogs/pets category, because they are cash traps. Left unchecked, they could drain the resources of the company over time. It is best to divest in this case.