BCG GROWTH-SHARE MATRIX

Establishing a portfolio of Strategic business units: Once business mission is defined, the strategist then
needs to identify various businesses the firm must compete in. Each such independent business working
under the corporate umbrella is known as Strategic Business Unit (SBU). For example: ITC is a prominent
tobacco giant which has the following business units:

 Group of hotels

 Agro

 Info-tech

 Lifestyle retailing (Wills Sport)

 Bhadrachalam (Paper & Paperboards) and

 ITC greeting

 Mathbox manufacturing

Each of these businesses have their own set of objectives and hence have their own strategy to succeed
in their respective strategic markets. Any SBU has under mentioned three basic characteristics:

 It can be single business or can also be a collection of related businesses

 It has its own set of competitors

 Each SBU has its own management structure for taking care of strategic planning and financial
performance

Boston Consulting Group Matrix/Growth-share matrix

BCG’s matrix, commonly known as growth-share matrix is a portfolio analysis tool that involves a
corporate’s different SBUs are represented in the form of a matrix as per the market growth (on y axis)
and their relative market share (on x axis) of each SBU against its largest competitors.

a) Stars are those businesses which are characterized by high growth rate of the market they are
performing in and high relative market share.

Strategy to be followed: Build: Overlook short-term earnings for long term gains and invest for the
future.

b) Question marks are those businesses which are operating in high growth markets but have low
relative market share.

Strategy to be followed: Build or Divest: question marks can be future stars. Question marks with
higher potential must be build. If in spite of repeated attempts to revamp, question marks don’t
perform, it might become a dog and hence must be divested.

c) Cash cows are those mature businesses that are operating in markets with slow growth but have
high relative market share.
 Strategy to be followed: Milk the cow to gain maximum out of a mature business and invest a
little back for the business might meet a decline after maturity.
d) Dogs are those businesses that are working in a very low growth markets and have the least
relative market share
Strategy to be followed: Divest: Get rid of such businesses and dives4t them.

What is the Boston Consulting Group (BCG) Matrix?

The Boston Consulting Group Matrix (BCG Matrix), also referred to as the
product portfolio matrix, is a business planning tool used to evaluate the
strategic position of a firm’s brand portfolio. The BCG Matrix is one of the
most popular portfolio analysis methods. It classifies a firm’s product and/or
services into a two-by-two matrix. Each quadrant is classified as low or high
performance, depending on the relative market share and market growth rate.

Understanding the Boston Consulting Group (BCG) Matrix

The horizontal axis of the BCG Matrix represents the amount of market share
of a product and its strength in the particular market. By using relative market
share, it helps measure a company’s competitiveness.

The vertical axis of the BCG Matrix represents the growth rate of a product
and its potential to grow in a particular market.

In addition, there are four quadrants in the BCG Matrix:

1. Question marks: Products with high market growth but a low market
share.
2. Stars: Products with high market growth and a high market share.
3. Dogs: Products with low market growth and a low market share.
4. Cash cows: Products with low market growth but a high market share.

The assumption in the matrix is that an increase in relative market share will
result in increased cash flow. A firm benefits from utilizing economies of
scale and gains a cost advantage relative to competitors. The market growth
rate varies from industry to industry but usually shows a cut-off point of 10% –
growth rates higher than 10% are considered high, while growth rates lower
than 10% are considered low.

The BCG Matrix: Question Marks

Products in the question marks quadrant are in a market that is growing

quickly but where the product(s) have a low market share. Question marks are
the most managerially intensive products and require extensive investment
and resources to increase their market share. Investments in question marks
are typically funded by cash flows from the cash cow quadrant.

In the best-case scenario, a firm would ideally want to turn question marks
into stars (as indicated by A). If question marks do not succeed in becoming a
market leader, they end up becoming dogs when market growth declines.

The BCG Matrix: Dogs

Products in the dogs quadrant are in a market that is growing slowly and
where the product(s) have a low market share. Products in the dogs quadrant
are typically able to sustain themselves and provide cash flows, but the
products will never reach the stars quadrant. Firms typically phase out
products in the dogs quadrant (as indicated by B) unless the products are
complementary to existing products or are used for a competitive purpose.

The BCG Matrix: Stars

Products in the star quadrant are in a market that is growing quickly and one
where the product(s) have a high market share. Products in the stars quadrant
are market-leading products and require significant investment to retain their
market position, boost growth, and maintain a competitive advantage.

Stars consume a significant amount of cash but also generate large cash flows.
As the market matures and the products remain successful, stars will migrate
to become cash cows. Stars are a company’s prized possession and are top-of-
mind in a firm’s product portfolio.
The BCG Matrix: Cash Cows

Products in the cash cows quadrant are in a market that is growing slowly and
where the product(s) have a high market share. Products in the cash cows
quadrant are thought of as products that are leaders in the marketplace. The
products already have a significant amount of investments in them and do not
require significant further investments to maintain their position.

Cash flows generated by cash cows are high and are generally used to finance
stars and question marks. Products in the cash cows quadrant are “milked”
and firms invest as little cash as possible while reaping the profits generated
from the products.

The BCG Matrix, also known as the Boston Consulting Group Matrix, is a strategic tool used to
analyze the position of a company’s business units or products in the market. It categorizes the
business units into four quadrants: STARS, QUESTION MARKS, CASH COWS, and DOGS, based on
their relative market share and market growth.
By using the BCG Matrix, we can gain insights into which business units are performing well and
have the potential for future growth, and which ones may require further investment or
divestment.

The BCG matrix considers two variables i.e. relative market share and
market growth rate. It also considers two assumptions. First assumption
is that an increase in relative market share of a company will result in an
increase in the generation of its cash. The second assumption is that a
growing market requires substantial investment to increase capacity
which results in the consumption of its cash. These assumptions imply
that just high market growth or high market share does not give an
overall picture of a business unit.

How to use the BCG growth-share matrix?

The BCG growth-share matrix is divided into 4 quadrants based on market

growth and relative market share, as shown in the diagram above. The four
quadrants or categories are as follows:
Stars

Stars are those businesses or products that have high market shares and high
market growth. As they have a high market growth, they need heavy
investment as well. Eventually, their growth will slow down and they may turn
into cash cows. For example, many would argue that iPhone is a start product
for Apple.

Cash Cows

Cash cows are those products that have a low market growth; however, they
have high a market share. These are mature and successful businesses which
require a limited amount of investment. For example, many would argue that
iPod is a cash cow for Apple as the product has a high market share and
certainly, a low market growth.

Question marks

Question marks are also called problem children. These are the businesses or
products which have a low market share but a high market growth. For
example, many would argue that Apple TV is a question mark as it makes a bit
of money; however, it has a high growth potential.

Dogs

Dogs are those businesses or products which have a low market share and a
low market growth. Apple Pippin was launched in Japan in 1995 and in the
USA in 1996. However, the product flopped extremely miserably. Apple Pippin
is an example of dogs.
DEVELOPING GROWTH STRATEGIES

The Matrix is used to evaluate the relative attractiveness of growth strategies

that leverage both existing products and markets vs. new ones, as well as the
level of risk associated with each.

Each box of the Matrix corresponds to a specific growth strategy. They are:

1. Market Penetration – The concept of increasing sales

of existing products into an existing market
2. Market Development – Focuses on selling existing products
into new markets
3. Product Development – Focuses on introducing new products to
an existing market
4. Diversification – The concept of entering a new market with
altogether new products
Market Penetration

The least risky, in relative terms, is market penetration.

When employing a market penetration strategy, management seeks to sell

more of its existing products into markets that they’re familiar with and where
they have existing relationships. Typical execution strategies include:

 Increasing marketing efforts or streamlining distribution processes

 Decreasing prices to attract new customers within the market segment
 Acquiring a competitor in the same market

Consider a consumer packaged goods business that sells into grocery chains.
Management may seek greater penetration by amending pricing for a large
chain in order to secure incremental shelf space not just for packaged food
products but also for several lines of its pet food products, too.

Market Development

A market development strategy is the next least risky because it does not
require significant investment in R&D or product development. Rather, it
allows a management team to leverage existing products and take them to a
different market. Approaches include:

 Catering to a different customer segment or target demographic

 Entering a new domestic market (regional expansion)
 Entering into a foreign market (international expansion)

An example is Lululemon; management made a decision to aggressively

expand into the Asia Pacific market to sell its already very popular athleisure
products. While building an advertising and logistics infrastructure in a foreign
market inherently presents risks, it’s made less risky by virtue of the fact that
they’re selling a product with a proven roadmap.

Product Development

A business that firmly has the ears of a particular market or target audience
may look to expand its share of wallet from that customer base. Think of it as
a play on brand loyalty, which may be achieved in a variety of ways, including:

 Investing in R&D to develop an altogether new product(s).

 Acquiring the rights to produce and sell another firm’s product(s).
 Creating a new offering by branding a white-label product that’s actually
produced by a third party.

An example might be a beauty brand that produces and sells hair care
products that are popular among women aged 28-35. In an effort to capitalize
on the brand’s popularity and loyalty with this demographic, they invest
heavily in the production of a new line of hair care products, hoping that the
existing target market will adopt it.

Diversification

In relative terms, a diversification strategy is generally the highest risk

endeavor; after all, both product development and market development are
required. While it is the highest risk strategy, it can reap huge rewards – either
by achieving altogether new revenue opportunities or by reducing a firm’s
reliance on a single product/market fit (for whatever reason).
There are generally two types of diversification strategies that a management
team might consider:

1. Related Diversification – Where there are potential synergies that can be

realized between the existing business and the new product/market.

2. Unrelated Diversification – Where it’s unlikely that any real synergies will
be realized between the existing business and the new product/market.

 Ansoff Matrix is a popular strategic framework for decision-makers,

entrepreneurs, and business managers tasked with evaluating opportunities for
business growth.
 Marketing teams can also use it in the marketing planning phase.
 Best for companies with a serious commitment to aligning their efforts and
prioritizing transparency
 Pros: Simple to use and easy to understand, helps stakeholders understand the
level of risk associated with different strategies.
 Possible cons: It can’t be used as a standalone tool and it’s hard to make
accurate predictions.
 The Ansoff Matrix, also known as a product/market expansion grid, is a 2x2
strategic framework designed for organizations that want to move beyond
'business as usual’ and prioritize their strategic options.
 It's designed to help you figure out which of four strategic directions you should
take to successfully grow your business. The chosen approach should then
inform which tactics should be used in the strategy execution phase.
 Tip: Consider the fact that you don't have to stick to one strategy. Some
organizations adopt multiple strategies to reach different markets.
 In this article, we are going to explain each of the 4 growth strategies and how to
use the Ansoff Matrix in your strategic planning process.
 First, let's take a closer look at the matrix and its four quadrants.

What are the 4 growth strategies of the Ansoff Matrix?

1. Market Development Strategy

new markets / existing products

This is all about selling more of your current product or service to a different or
expanded group of people. In other words, you will focus on finding new market
segments to sell your product to.
These new customer segments will have the same needs as your existing customers,
but perhaps aren't aware that your product could help them.

Some examples of market development strategies that would fit into this part of the
matrix would be:

 Expanding into foreign markets (international expansion)

 Use of new sales channels such as online
 Franchising

A great example of market development:

Coconut Water had been on sale in health stores for decades. More recently, several
large manufacturers decided to change how they marketed the product.

They enlisted sports stars and celebrities, positioning Coconut Water as the healthy
alternative to sports drinks such as Gatorade. A year later, Coconut Water had snagged
nearly 6% of the global juice market.

2. Market Penetration Strategy

existing markets / existing products

Market penetration strategy is focused on selling your current product to the same
people but in larger quantities.

Here are some possible examples of how you can approach it:

 You may be more aggressive with your marketing but in the same customer segment
 You may also offer incentives for people to buy more of your product in exchange for a
discount
 Change pricing strategy: Lower or increase the price of your product
 Identify a business partnership that can help you grow your market share

A great example of market penetration:

Have you ever wondered how and why Coca-Cola is associated with Christmas? The
answer is that they decided to implement an aggressive strategy of market penetration.

They invested heavily in marketing to create a positive association between the two.
The target of the marketing effort was existing customers who already loved Coke, and
already loved Christmas.

By linking the two, Coca-Cola created a 13% revenue increase linked directly to
Christmas sales.
3. Product Development Strategy

existing markets / new products

This strategy is all about developing new products and selling them to your existing
customer base. For example, makers of sports shoes have aggressively developed
products such as sports clothing to sell to the same group of people who were originally
just buying shoes.

A great example of product development:

McDonald's seems to have done a pretty good job of weathering the changes in
consumer taste over the years. They've done this by supplementing their mainstream
fast-food products with new additions.

The strategy was to appease customers who've grown tired of high-fat junk food (but
love the convenience/low cost that McDonald's offers). A great example is the McSalad,
a completely different product from burgers and fries.

The McSalad debuted on the Maccas menu to stop an increasingly health-conscious

customer base from going elsewhere.

4. Diversification Strategy

new markets / new products

Diversification is the riskiest of all 4 growth strategies. This quadrant involves selling
new products to new markets.

The risk lies in your lack of familiarity with either the product or the market. In spite of
this, diversifying can often result in substantial gains.

There are two types of diversification strategy:

 Related diversification: It happens when the company moves into a new market that
has similarities with the company’s existing market.
 Unrelated diversification: It happens when the company moves into a new market that
has little to no similarities with the company’s existing market.

A great example of related diversification:

Long ago, Apple was a brand that only appealed to serious graphic designers and a
certain type of tech geek. Then came the iPod (and eventually the iPhone).
These products were actually very different from anything that had come before (from
Apple or anyone else). They were designed from day 1 to appeal to a totally different
customer base than had previously been buying Apple products.

What enabled them to do that?

As both products share similar manufacturing processes, Apple could share resources
across both product groups.

This is probably the single best-executed example of a new product + new customer the
world has seen.

BCG, also known as a product portfolio matrix, helps business prioritize their resource
allocation based on two dimensions: market growth and relative market share. BCG
Matrix focuses on the product, while Ansoff Matrix also takes into account the market.
Both have their own pros and cons, but used together can provide great support in the
strategic planning process.

THE ANSOFF MODEL

These ways are clearly presented in the Ansoff model, a strategic tool used during the
development of a growth strategy. It is a good basis for considering the strategic
development of your company.

The Ansoff growth matrix is comprised of two axes

 Products:
Which products do you currently offer, and which new products would you like to
offer in the future?

 The market:
Which markets do you currently serve, and which markets would you like to serve in
the future?

THE FOUR GROWTH STRATEGIES

Four types of growth strategies are proposed on this basis. The four main growth strategies
are as follows:

 MARKET PENETRATION

The aim of this strategy is to increase sales of existing products or services on

existing markets, and thus to increase your market share. To do this, you can attract
customers away from your competitors and/or make sure that your own customers
 buy your existing products or services more often. This can be accomplished by a
price decrease, an increase in promotion and distribution support; the acquisition of
a rival in the same market or modest product refinements.

 MARKET DEVELOPMENT

This means increasing sales of existing products or services on previously

unexplored markets. Market expansion involves an analysis of the way in which a
company's existing offer can be sold on new markets, or how to grow the existing
market. This can be accomplished by different customer segments ; industrial
buyers for a good that was previously sold only to the households; New areas or
regions about of the country ; Foreign markets

 PRODUCT DEVELOPMENT

The objective is to launch new products or services on existing markets. Product

development may be used to extend the offer proposed to current customers with
the aim of increasing their turnover. These products may be obtained by: Investment
in research and development of additional products; Acquisition of rights to produce
someone else's product; Buying in the product and "branding" it; Joint development
with ownership of another company who need access to the firm's distribution
channels or brands.

 DIVERSIFICATION

This means launching new products or services on previously unexplored markets.

Diversification is the riskiest strategy. It involves the marketing, by the company, of
completely new products and services on a completely unknown market.
Diversification may be divided into further categories:

O HORIZONTAL DIVERSIFICATION

This involves the purchase or development of new products by the company,

with the aim of selling them to existing customer groups. These new products
are often technologically or commercially unrelated to current products but
that may appeal to current customers. For example, a company that was
making notebooks earlier may also enter the pen market with its new product.

O VERTICAL DIVERSIFICATION

The company enters the sector of its suppliers or of its customers.For

example, if you have a company that does reconstruction of houses and
offices and you start selling paints and other construction materials for use in
this business.

O CONCENTRIC DIVERSIFICATION
 Concentric diversification involves the development of a new line of products
or services with technical and/or commercial similarities to an existing range
of products. This type of diversification is often used by small producers of
consumer goods, e.g. a bakery starts producing pastries or dough products.

O CONGLOMERATE DIVERSIFICATION

Is moving to new products or services that have no technological or

commercial relation with current products, equipment, distribution channels,
but which may appeal to new groups of customers. The major motive behind
this kind of diversification is the high return on investments in the new
industry. It is often used by large companies looking for ways to balance their
cyclical portfolio with their non-cyclical portfolio.

CONCLUSION
Based on the strategies used and its ambitions, a company can choose one of these four
strategies. This choice especially depends on the approach of a company's product/market
and the latter's taste for risk.