In this article, we will explain;

• What BCG Matrix is,
• How to apply it,
• Recommendations for better implementation.

What is BCG (Growth Share) Matrix?

BCG Matrix, also known as Growth-Share Matrix, is a framework that helps companies find the optimal way to prioritize either their products or business units.

BCG Matrix analyzes the portfolio of products or business units in two dimensions: market attractiveness and long-term profitability. It quantifies market attractiveness by market growth rate and long-term profitability by relative market share. The relative market share is the ratio of your product’s market share to its biggest competitor. Therefore, the BCG matrix assumes that the best indicator of long-term profitability is a competitive position.

The matrix is created by putting “relative market share” in the x-axis and “market growth” in the y-axis. Each axis is divided into two categories: high and low. As can be seen from the chart below, there are four quadrants and each quadrant are represented by different symbols: stars, question marks, dogs, and cash cows.

The matrix is designed upon these two assumptions:

• If a business unit or product has a high relative market share, which means a strong competitive position, it is expected to produce better long-term profitability.
• If a market is growing fast, it is expected to create better opportunities.

How to Apply the BCG Matrix?

Start by assigning all your business units or products to one of the quadrants. Then, interpret each quadrant as follows:

Dogs (Low Market Growth and Low Relative Market Share)

A business unit or a product is labeled as a DOG because its long-term profitability expectation is low, and the market is unattractive. They are not worth investing with the current strategy. Therefore, you should liquidate, divest, or reposition your DOGs.

Stars (High Market Growth and High Relative Market Share)

A business unit or a product is labeled as STAR because its long-term profitability expectation is high, and the market is attractive. Therefore, you should invest heavily in your STARs to create future Cash Cows.

Question Marks (High Market Growth and Low Relative Market Share)

A business unit or a product is labeled as a QUESTION MARK because its long-term profitability expectation is low, but the market is attractive. QUESTION MARKs are somewhere between turning into a STAR or a DOG. Some will end up being DOGs, but some might end up as STARs. Those are the products/units which require closer consideration. They usually consume a lot of resources but do not bring high returns. Therefore, you should assess their chances of becoming STARs thoroughly and then decide whether to invest in or discard them.

Cash Cows (Low Market Growth and High Relative Market Share)

A business unit or a product is labeled as CASH COW because its long-term profitability expectation is high, but the market is unattractive. These are often well-established business units or products operating in a mature market. You should milk your CASH COWs to fund your STARs and your QUESTION MARKs that have the potential to become a STAR.

Recommendations for Better Implementation

BCG states that the importance of the matrix has evolved due to today’s faster-changing business environment and the greater uncertainty that comes with it. Use the BCG Matrix as a practical initial step while evaluating your portfolio and complement it with thorough analyses because:

• The market growth rate may not correctly indicate market attractiveness in some cases.
• Relative market share may not correctly indicate long-term profitability.

Conclusion

As you can understand from the framework, the key lesson is that you should try to get a large share of the cake before the market growth starts to slow down. Your products or business units will eventually turn into either cash cows or dogs. You should aim to have as many cash cows and no dogs if possible.

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