BCG MATRIX 1

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Boston Consulting Group Matrix (BCG) classifies a firm product into two by two matrix.

Classifying each quadrant as either high and low performance depends on the relative market

share and market growth rate. Market growth rate shows a cut -off point of 10%. Growth rates

higher than 10% are considered high while growth rates lower than 10 % are considered low

(Henderson,2013). The amount of market share of a product and its strength in a particular

market is represented by horizontal axis. Vertical axis represents the growth rate of a product and

its potential to grow in the particular market.

Quadrants Matrix of BCG (Barkslade &Harris jr,2009)

The BCG Matrix: Question Marks

This are products with high market growth but low market share. Due to question marks

products being intensive they require extensive investment and resource to increase their market

share. In question marks we invest using cash flow from cash cow quadrant. However, if they do

not succeed in becoming market leaders, question marks may end up becoming dogs when

market growth declines.

The BCG Matrix: Dogs

This are products with low market growth and low market share. Dogs product are able

to sustain themselves and provide cash flows although the product will never reach the star

quadrant. Unless the products are complementary to existing products or are used for a

competitive purpose, firms typically phase out products in the dog’s quadrant. The usual

marketing advice here is to aim to remove any dogs from your product portfolio as they are a

drain on resources.

The BCG Matrix: Stars

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This are products with high market growth and high market share. The products require

significant investment to retain their market position, boost growth and maintain a competitive

advantage because they are market leading. Despite consuming significant amount of cash, Stars

generate large cash flows. Stars will migrate to become cash cows as the market matures and

products remain successful.

The BCG Matrix: Cash Cows

This are products with low market growth and high market shares. Normally, they are

thought as being product leaders in the market place. Despite having significant amount of

investments in them, they do not require significant investments to maintain their positions. The

cash flow used to finance stars and question marks is generated by cash cows. Products in the

cash cow’s quadrant are “milked” and firms invest as little cash as possible while reaping the

profits generated from the products (Andrea,2014).

Benefits of BCG Matrix

1.It is easy to perform

2.It helps to understand the strategic positions of business portfolio.

3.It is a good starting point for further more thorough analysis.

4.It provides high level way to see the opportunities for each product in your portfolio.

6.It shows if your portfolio is balanced.

Limitations of BCG Matrix

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1.The true nature of business may not reflect since it classifies business as low or high where else

the business can be medium also.

2.Market is not clearly defined in this model.

3.Since there are high costs involved with high market share, market does not always lead to

high profit.

4.Sometimes dogs may help other businesses in gaining competitive advantage.

5.Growthrate and relative market share are not the only indicators of profitability.

6.It does not include other external factors that may change the situation completely.
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Reference

Henderson, B. D. (2013). The product portfolio. Consulting Group

Barkslade, H.C. & Harris Jr, C.E. (2009). Portfolio Analysis and the Product Life Cycle.

Long Range Planning. (Vol.15 Issue 6)

Andrea. (2014). The Rise and Fall of BCG Matrix. Proceeding of the 8th

International Management Conference.