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Boston Consulting Group

(BCG) Growth-Share Matrix
Originally developed by the Boston Consulting Group, the BCG Growth-Share
Matrix (often referred to as the BCG Matrix) is a simple model that uses relative
market share and rate of market growth as criteria to help companies with multiple
lines of business prioritise investment.

MBA Management Models

Aug 26, 2021 • 4 min read

What it is
As firms diversify, it can be challenging to maintain a balanced portfolio and set
priorities for future investment. The BCG Growth-Share Matrix provides a simple
tool to get a high-level overview of a corporate portfolio, acting as an input into
strategic investment decision making.

Background
In the 1970s, marketing managers began to recognise that companies' shift
towards more diversified product offerings required new planning models to
provide a means for analysing investment opportunities.

Several models were proposed, including the General Electric/McKinsey matrix,

the BCG Matrix, with its focus on cash flow rather than profits, being one of the
most popular.

When to use it
The BCG Growth-Share Matrix can be used to:

help managers decide which businesses to consider for further

investment and which to consider for divestment

describe the market environments in which different lines of business

operate

How to use it
Two key assumptions form the core of the BCG Matrix:

1. Market growth harms cash flow due to the requirement for investment in
manufacturing facilities, equipment and marketing.

2. There is a direct positive correlation between increased market share and

profit.

The model requires each business line to be placed in one of four quadrants,
depending on the rate of market growth and current relative market share.

Boston Consulting Group (BCG) Growth-Share Matrix

The four quadrants are:

Stars - high rate of market growth and high relative market share
Business lines within this quadrant are likely to be highly profitable but will likely
need investment to maintain growth and challenge new and existing competitors.

Investment should be made in Star businesses to ensure enough resources are

available to secure the current market-leading position and explore opportunities
for further growth. In the future, as the market slows, Stars will likely have the
opportunity to become Cash Cows, so the current market share must be
protected.

Cash Cows - low rate of market growth and high market share
Cash Cows are the market leaders within a stable market. As such, they are likely
highly profitable and require little investment. The barrier to entry into a stable
market is likely high enough to deter most potential competition.

Question Marks - high rate of market growth but low market share
These products tend to be a drain on cash flow due to the high rate of market
growth but are unlikely to be highly profitable due to the low market share.

Managers will need to decide whether to invest more cash into the business to try
to gain more market share and turn it into a Star, raise the price and lower
marketing spend to try to make the most of the current position or divest the
business entirely.

Dogs - low rate of market growth and low market share

These are generally weak products within low-growth markets. They are often
cash flow negative, leaving managers with the option to increase prices to
improve cash flow for a period or divest to release resources.

Frequently asked questions (FAQs)

What are the weaknesses of the BCG Matrix?
The BCG Matrix is regarded by many as over-simplistic due to its focus on cash
flow. Increasingly managers are tending towards more a holistic modelling
approach focusing on shareholder value and the total market value of a portfolio
as a whole, making divestment decisions based on whether a company is better
off with or without a particular product within its portfolio.

Be aware of the assumptions described at the beginning of the How to use it

section and ensure that they are valid for each of the products or businesses
placed on the matrix.

By concentrating wholly on the BCG Matrix, managers may ignore other

important factors such as Customer Perceived Value (CPV).

When using the BCG Matrix, care should be taken to recognise possible
interdependencies between market offerings that the model does not make
obvious.

Related models

Customer Perceived Value (CPV)

Customer Perceived Value (CPV) is a conceptual marketing model
used to determine the difference between a prospective customer…

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Further reading
Reeves, M., Moose, S. and Venema, T. (2014) The Growth Share Matrix. Boston,
MA: The Boston Consulting Group. Available from https://image-
src.bcg.com/Images/BCG_Classics_Revisited_The_Growth_Share_Matrix_Jun
_2014_tcm9-84453.pdf [accessed 26 August 2021].

Kotler, P., Keller, K. L., Brady, M., Goodman, M. and Hansen, T. (2019)
Marketing Management, 4th European edition. Harlow, UK: Pearson Education.

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