BCG Growth-Share Matrix
Reviewed by Aug 27, 2020| Updated on
What is a BCG Growth-Share Matrix?
The Boston Consulting Group (BCG) Growth-Share Matrix refers to a planning tool that graphically represents a company's products and services as a means to make it easier for the company's administration to make informed decisions about what they must sell, keep, or invest more in. The matrix was first developed by Boston Consulting Group in the year 1970.
The matrix arranges the companies products and services in a four-square matrix where the x-axis states the market share of the offerings, and the y-axis represents the respective rate of market growth. The offerings are categorised into the labels—dogs, cash cows, stars, and question marks. Each of these categories has a unique set of characteristics.
Understanding BCG Growth-Share Matrix
Dogs The company's products that have a low market share and low growth rate fall in this category and suggests that the product/service must be sold, liquidated, and the earnings must be repositioned. Within the four-squares, dogs are positioned at the lower right quadrant of the grid and are known for producing the least cash for the company. They are the right candidates for divestiture.
Cash Cows Those products/services that see low growth, but have a huge market share are called cash cows. The situation calls for the company to make as many profits as possible within the time the product/service is in demand. Cash cows are positioned at the lower left quadrant and possess leading products in mature markets. The returns from such products will be higher than the market growth rate and can sustain for a period of time. Their cash flow patterns are highly predictable.
Stars The stars category includes those products that are in high growth markets, and it is suggested that huge investments be made on them. They constitute the upper left quadrant and have the potential to make up for a sizable portion of the market. Though they take up a large amount of a company's investment, they are sure to make a high income. If a star remains a market leader for a while, they can become cash cows when the market's growth rate declines.
Question Marks Products/services may become questionable when they are in a high growth market but fail to acquire a large market share. They constitute the upper-right quadrant. While they grow fast, they consume a lot of resources for the same. They must be regularly analysed to see if they are worth the investment.