BCG

Matrix Dr Amit Rangnekar www.dramitrangnekar.com

BCG Matrix- Growth Share Matrix - Product Portfolio Matrix

The BCG matrix was developed by the Boston Consulting Group in 1968. The BCG matrix is used to
analyse and allocate resources either in product portfolio planning, or for strategic business units
(SBU).

Model- The BCG Matrix si resource allocation model

Application- Product portfolio planning or strategic business units (SBU)
Decision- In which brands/ SBU should you invest, divest, harvest, milk.

Figure 1 BCG Matrix- Growth Share Matrix - Product Portfolio Matrix

Source: Adapted from BCG Matrix- Growth Share Matrix, www.bcg.com

The BCG matrix links market growth and relative market share (RMS) to plan the portfolio, and
recommend strategy for various SBU/ products. Market growth is the growth of the corporate that
the SBU is a part of. RMS is the multiple of the market share of the leader vis-à-vis the second player
and a fraction of the followers market share vis-à-vis the leader.

1.0 Quadrants
The SBU are plotted in the matrix based on their RMS and growth across the four quadrants- cash
cow, dog, problem child (also called question marks) and star. The strategy is to usually milk cash
cows, invest in stars, review problem children and divest the dogs. But there may be exceptions.

Cash cow- The SBU/ products in the low growth/high share category are called ‘cash cows’. Such
SBU/ products are established leaders with low growth, high RMS, relatively lesser promotional
expenditure, and assumed to have high margins. Their profits can be used to finance other SBU/
products in the other 3 quadrants. Cash cows are well established and should be "milked" with as
little investment as possible, as high investment may be wasted in such industries with low growth.
Dog- The SBU/ products in the low growth/low share category are called ‘dogs’. These SBU/
products have a low share of a low growth market and may not be profitable. Efforts should be
made to improve their performance without any additional investment (harvest) but if there is no
scope then they should be divested (sold or stopped).

BCG Matrix Dr Amit Rangnekar www.dramitrangnekar.com

Problem Child / Question mark- The SBU/ products in the high growth/low share are called
‘problem children’ or ‘question marks’ as they are growing rapidly and thus consume large amounts
of cash, but because they have low market share they generate low returns. The SBU/products enter
the matrix from this high growth category, which has high potential. This category incurs
investments, but progress should be reviewed, sufficient time should be given, and this category
should be supported with higher investment as the problem child can grow to be a star or a cash
cow, or may drop down to the dog category.
Star- The SBU/ products in the high growth/high share category are called ‘stars’ as they generate
high sales amid intense competition in a fast growing market, but consume heavy investments. Stars
have the potential to become future cash cows and are usually invested in.

2.0 Strategies
Invest- add resources for the medium to long term in terms of money in promotional activities, new
facilities, extensions, reach, new geographies etc
Harvest - reduce investment and operating expenses in the product to the minimum possible, no
additional expenditure than existing, and try to maximize the sales and profit.
Milk- stop investment and reduce operating expenses to the bare minimum to ensure availability
only for loyal customers.
Divest- disinvest in the brand, stop marketing the brand further or sell the brand.

Table 1 below looks at the strategies in each quadrant. The usual strategy adopted is highlighted in
bold while exceptions are not highlighted.
Invest Harvest Milk Divest

Stars Usually Invest, Harvest, only if Rarely, if no competition or

to sustain competition is low RMS is very high
their high or RMS is very high
growth
Cash Only if high Usually Milk. Assumed to
Cows growth but have high profits which can
with lower be invested in brands in the
RMS other three quadrants
Question Invest, if Harvest, if brand is
Marks potential to be old, growing , but
leader is high cannot be a leader.
Dogs Harvest, if brand is Divest, if brand
growing, high RMS is old, not
growing, very
low RMS

3.0 Limitations
Does not consider industry attractiveness, assumes profitability. Trends, environment and SBU
sensitivities are not considered. Assigning relative market share is a challenge. 2 by 2 matrix does
not cover strategies adequately

BCG Matrix Dr Amit Rangnekar www.dramitrangnekar.com

Below are 2 illustrations- 4.0 isthe SBU illustration, 5.0 is the product portfolio illustration

4.0 P Products (Illustration SBU)

P Group is growing at 5% over the previous year and has the following SBU- Biscuits, Chocolates,
Snacks and Candies. In Biscuits P Group is a leader with 2 times the share of the second largest
player. In Candies also P Group is a leader with 2 times the share of the second largest player. They
are second placed (followers) in both, Chocolates with a RMS of 50% of the leader(0.5X), and in
Snacks with a RMS of 20% of the leader (0.2X). Based on the RMS and the growth the SBU are
plotted on the BCG matrix.

Table 2 P Group Market (Hypothetical Figures)

SBU Leader/ Follower Relative Market Share X Growth %
Biscuits Leader 2X 8%
Chocolates Follower 0.5X 10%
Snacks Follower 0.2X -4%
Candies Leader 2X 4%

Figure 2 P Group BCG matrix

4.1 Analysis and Decisions

Question Mark- Chocolates is an old category, growing, but is placed far away from the leader (Low
RMS) and further investments may not make it a leader. So harvest chocolates.
Star- Biscuits has high RMS and high growth but assumed to have high competition hence assumed
to have high promotional costs, hence invest to sustain its star status. Investment could lead to
more promotion, new packs, more brand extensions and flavours.
Cash Cow- Candies have high RMS but are growing at lesser than company growth. As it is an old
established brand, with loyal customers, its promotional costs are very low and hence is assumed to
be highly profitable. Since this brand may not have high growth prospects its resources may be
allocated to the brands in the star and question mark segments.
Dog- Snacks are neither growing nor have high RMS hence should be divested.

BCG Matrix Dr Amit Rangnekar www.dramitrangnekar.com

5.0 P Products (Illustration Product Portfolio)

The Biscuits category of P Group is a leader in its category. We do a product portfolio analysis of its
brands to see where they stand and how resources should be allocated.

Table 3 P Group Market (Hypothetical Figures)

SBU Leader/ Follower RMS-X Growth % Position Decision
Parle-G Leader 3X 3% Cash Cow Milk
KrackJack Leader 2X 2% Cash Cow Milk
Cheeseling Leader 5X 12% Star Harvest
Hide & Seek Leader 3X 10% Star Invest
Nimkin Follower 0.4X 6% Question Mark Harvest
20-20 Follower 0.7X 8% Question Mark Invest
Marie Follower 0.1 -3% Dog Divest
Cream Treat Follower 0.6X -2% Dog Harvest

Figure 3 P Group BCG matrix Product portfolio

Analysis and Decisions

Decisions are mentioned in Table 3, strategy is explained below. Brands in blue to be harvested,
green to be milked, purple to be invested in and those in red should be divested. Cash cows Parle G
and Krackjack are well entrenched leaders, plough their profits into brands in the other 3 quadrants
for their growth. Cheeseling has a RMS of 5X so investment is not necessary, harvest profits. Hide &
Seek is growing fast and can be taken to the next level with investments in promotion and in new
flavours like Belgian Chocolate and Ferrero Rocher. Nimkin may not go far but is growing, harvest
with minimum investments to sustain its growth. 20-20 is growing fast and can be a leader, invest in
point of sale promotion to penetrate the market and make it available widely. Cream Treat although
in the dog category and not growing is still nearer to the leader and should be harvested. Cream
Treat does not have the best taste and its taste should be improved with proper marketing research
to get the best flavours. Small packs of Cream Treat could be bundled with large packs of Parle-G
free so that customers taste the new flavours and the brand is accepted.