BCG MATRIX

Presented by: Osama Nasir Qureshi and Hoor Shahid.

 WHAT ACTUALLY IS A BCG MATRIX
 The BCG Growth-Share Matrix is a portfolio planning model developed by
Bruce Henderson of the Boston Consulting Group in the early 1970's.
 The Boston Consulting group’s product portfolio matrix (BCG matrix) is
designed to help with long-term strategic planning, to help a business
consider growth opportunities by reviewing its portfolio of products to decide
where to invest, to discontinue or develop products.
 The technique is particularly useful for multi-divisional or multi-product
companies. The divisions or products compromise the organizations “Business
Portfolio”. The composition of this portfolio can be critical to the growth and
success of the company.
 COMPOSITION OF THE BCG
MATRIX
• The Matrix is divided into 4 quadrants derived on two variables namely,
market growth and relative market share.
•
It is based on the observation that a company’s business units can be
classified into four categories based on combinations of market growth and
relative market share to the largest competitor. The market growth rate is
shown on the vertical (y) axis and the relative market share is shown on the
horizontal (x) axis.
• Market growth serves as a proxy for industry attractiveness, and relative
market share serves as a proxy for competitive advantage. The growth-share
matrix thus maps the business unit positions within these two important
determinants of profitability.
• There are four quadrants into which firms brands are classified:-
• Dogs. Dogs hold low market share compared to competitors and operate in
a slowly growing market. In general, they are not worth investing in because
they generate low or negative cash returns. But this is not always the truth.
Some dogs may be profitable for long period of time, they may provide
synergies for other brands or SBUs or simple act as a defense to counter
competitors moves.
• Strategies for Dogs – Depending on the amount of cash which is already
invested in this quadrant, the company can either divest the product
altogether or it can revamp the product through rebranding / innovation /
adding features etc. However, moving a dog towards a star or a cash cow is
very difficult. It can be moved only to the question mark region where again
the future of the product is unknown. Thus in cases of Dog products,
divestment strategy is used.
• Cash Cows. The cornerstone of any multi product business, cash cows are
products which are having a high market share in a low growing market. As
the market is not growing, that cash cow gains the maximum advantage by
generating maximum revenue due to its high market share. Thus for any
company, the cash cows are the ones which require least investment but at
the same time give higher returns.
• Strategies for cash cow – The cash cows are the most stable for any business
and hence the strategy generally includes retention of the market share. As
the market is not growing, acquisition is less and customer retention is high.
Thus customer satisfaction programs, loyalty programs and other such
promotional methods form the core of the marketing plan for a cash cow
product / SBU.
• Stars. Stars operate in high growth industries and maintain high market share.
Stars are both cash generators and cash users. They are the primary units in
which the company should invest its money, because stars are expected to
become cash cows and generate positive cash flows. Yet, not all stars
become cash flows. This is especially true in rapidly changing industries,
where new innovative products can soon be outcompeted by new
technological advancements, so a star instead of becoming a cash cow,
becomes a dog.
• Strategies for Stars – All types of marketing, sales promotion and advertising
strategies are used for Stars. This is because in cash cow, already these
strategies have been used and they have resulted in the formation of a cash
cow. Similarly in Stars, because of the high competition and rising market
share, the concentration and investment needs to be high in
marketing activities so as to increase and retain market share.
• Question Marks. Question marks are the brands that require much closer
consideration. They hold low market share in fast growing markets
consuming large amount of cash and incurring losses. It has potential to gain
market share and become a star, which would later become cash cow.
Question marks do not always succeed and even after large amount of
investments they struggle to gain market share and eventually become
dogs. Therefore, they require very close consideration to decide if they are
worth investing in or not.
• Strategies for Question marks – As they are new entry products with high
growth rate, the growth rate needs to be capitalized in such a manner that
question marks turn into high market share products. New Customer
acquisition strategies are the best strategies for converting Question marks to
Stars or Cash cows. Furthermore, time to time market research also helps in
determining consumer psychology for the product as well as the possible
future of the product and a hard decision might have to be taken if the
product goes into negative profitability.
 SEQUENCES IN THE MATRIX
• Successive Sequences in BCG Matrix. The Success sequence of BCG matrix
happens when a question mark becomes a Star and finally it becomes a
cash cow. This is the best sequence which really give a boost to the
companies profits and growth. The success sequence unlike the disaster
sequence is entirely dependent on the right decision making.
• Disaster Sequences in BCG Matrix. Disaster sequence of BCG matrix happens
when a product which is a cash cow, due to competitive pressure might be
moved to a star. It fails out from the competition and it is moved to a
question mark and finally it may have to be divested because of its low
market share and low growth rate. Thus the disaster sequence might happen
because of wrong decision making.
 STRATEGIES BASED ON BCG
MATRIX
• There are four strategies possible for any product / SBU and these are the strategies
which are used after the BCG analysis. These strategies are
• 1) Build – By increasing investment, the product is given an impetus such that the
product increases its market share. Example – Pushing a Question mark into a Star and
finally a cash cow (Success sequence)
• 2) Hold – The company cannot invest or it has other investment commitments due to
which it holds the product in the same quadrant. Example – Holding a star there itself as
higher investment to move a star into cash cow is currently not possible.
• 3) Harvest – Best observed in the Cash cow scenario, wherein the company reduces the
amount of investment and tries to take out maximum cash flow from the said product
which increases the overall profitability.
• 4) Divest – Best observed in case of Dog quadrant products which are generally divested
to release the amount of money already stuck in the business.
• Thus the BCG matrix is the best way for a business portfolio analysis. The strategies
recommended after BCG analysis help the firm decide on the right line of action and
help them implement the same.