Boston Consulting Group (BCG)

matrix
The Boston Consulting Group (BCG) matrix is a visual marketing management
tool used to analyse a firm’s product portfolio. For example, Apple’s product portfolio
(which gives it a range of revenue streams) include: the iPhone, iPad, iPod, iTunes,
Apple Watch, MacBook laptops and computer accessories. Some products (such as
the iPhone) earn Apple a huge amount of sales revenue, whereas other products in
its portfolio (such as iPods) earn less revenue for the company.
The term BCG Matrix is named after Boston Consulting Group, the management
consultancy group that developed the marketing management tool.
Did you know?

 LVMH (Louis Vuitton Moët Hennessy) is a large French multinational corporation and
conglomerate that specializes in luxury goods. Its product portolio includes the like of
Moët & Chandon (champagne), Perfumes Loewe (perfumes and cosmetics), TAG Heuer
(luxury watches), Tiffany & Co. (jewellery), and Princess Yachts (luxury yachts). Its
fashion and leather goods brands include Christian Dior, Fendi, Givenchy, Kenzo, Louis
Vuitton, and Marc Jacobs.

 PepsiCo’s product portfolio includes: Lay’s, Doritos, Quavers, Cheetos, Mountain Dew,
Aquafina, 7-Up, Lipton, Tropicana, Gatorade, Taco Bell, KFC, and Pizza Hut.

 Sony, Japan's global electronics giant, was founded in Tokyo in 1946 by Ibuka Masaru
and Morita Akio. The company's first product was a rice cooker. Sony branched out into
creating radios in the 1950s, and a broader product range of consumer electronics in the
1960s.

 Proctor & Gamble’s billion-dollar products (those that earn P&G more than $1bn in
sales a year) include: Crest (toothpaste), Duracell (batteries), Gillette (shaving products),
Head & Shoulders (shampoo products), Oral-B (hygiene products), Pampers (diapers),
Tide (cleaning products) and Pringles (potato chips).

 The Volkswagen Group (Europe’s largest car manufacturer) owns Audi, Bentley,
Bugatti, Ducati, Lamborghini, Porsche, ŠKODA, and SEAT. The VW Group also
produces its own sausages(!) as it is cheaper to do so in its own factories than to buy
these for their staff canteen.

Benefits of a balanced product portfolio

 Having a broad product portfolio can a help business to increase its brand awareness.

 It also reduces the risks and exposure associated with having just a single product, such
as seasonal fluctuations in demand for certain products. This reduces the risks of
making losses overall.
  It increases the firm’s revenue streams as a variety of products will appeal to a wider
customer base.

 It helps to meet the varying needs of different market segments.

 It can encourage customer loyalty as research shows customers are more likely to buy
multiple products from the same brand that they trust and are devoted to.

 Similarly, it makes it easier to launch new products due to greater brand awareness and
brand loyalty.

 Ultimately, having a broad and balanced product portfolio can increase profits from
selling a range of different products targeted at larger markets.
Costs of a balanced product portfolio

 Higher costs of research and development (R&D) due to multiple products needing to
researched, tested, developed, and launched.

 Similarly, marketing costs (such as promotions and advertising) will be higher due to the
need to market a larger range of existing products in the portfolio.

 Brand exposure also carries risks as bad publicity incurred by one product in the portfolio
may affect sales of all other products within the firm's portfolio.

 Resources may be spread too thin as there are too many products in the portfolio to
manage effectively.
Question marks (also called problem children or wild cards)

 Products with low market share but in a high growth market.

 The product is at the introduction (launch) stage in the product life cycle.

 These products use up the firm’s finances (negative cash flow) but are yet to be
profitable.

 These products may also have suffered from relatively inferior marketing or product
quality.

 Marketers may attempt to convert question marks into stars, although this needs
investment.
Stars

 Successful products with high market share in industries with high market growth.

 Stars are at the growth stage in their product life cycle.

 Products with high market share, in mature markets with low market growth.

 Cash cows are the most profitable in a firm’s product portfolio as they are at the maturity
stage in their PLC.

 The products are well established in the market so are the main cash earners for the
business.
Dogs

 Dogs are products with low market share in markets with low or declining growth.

 These products are at the decline phase of the PLC.

 Firms with too many dogs in their product portfolio will suffer from poor cash flow.

 Firms need to decide whether to spend money on extending the life of such products, or
to divest in order to prevent further losses since they drain cash from the business.

Product portfolio strategy

 For question marks, a building strategy is used in order to turn question marks into
stars.

 For stars, the firm uses a holding strategy – some investment is needed to maintain
high market share and to sustain consumer demand for the product. Assuming that stars
maintain their relative market share (with or without additional financial support) they will
eventually become cash cows for the business.

 For cash cows, a harvesting strategy is used to milk the cash from its best-selling
products. The funds can be used to finance the investments in stars and question marks.

 For dogs, a divesting strategy is used, whereby poor performing dogs are phased out of
the market as they reach the last stage in their product life cycle.