Product Portfolio Analysis

BCG Matrix

Julian Grail
jgrail2@glos.ac.uk
Why consider product portfolios?
“To be successful, a company should have a portfolio of products with different growth
rates and different market shares. The portfolio composition is a function of the balance
between cash flows. High growth products require cash inputs to grow. Low growth
products should generate excess cash. Both kinds are needed simultaneously.”
Bruce Henderson (1970) – Founder Boston Consulting Group.

Analysis of Product Portfolios assists an organisation in:

Understanding the risk profiles of products.
Cash demands of products – how much investment is required.
The Development cycle of products.
Resource allocation.

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BCG Matrix – Boston Matrix – Product Portfolio Matrix
This simple tool developed around 1970 by the Boston Consulting Group to classify an
organisations product portfolio.
Uses a 2 x 2 matrix with axis for Relative Growth and Relative Market Share.
When considering these two axis we have to be consistent in our approach to each of our
products in deciding what is relatively large or small:
Market Share – As a starting point you can compare to the market leader for that particular
product. Is small less than a half, third, or quarter of the market leader?
Relative Growth – Do we compare to growth against other products, market average, or
market leader?

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BCG Matrix – Boston Matrix

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BCG Matrix – Boston Matrix
Low Growth / Low Market Share

Unless these products are profitable then probably best to divest in them, consider selling
them off.
If they are profitable then probably not worth any more investment but make the most out
of the current value.
You may need to hold onto them to provide customers with a complete product portfolio.

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BCG Matrix – Boston Matrix
Low Growth / High Market Share

High market share and low growth suggests that a healthy profit and minimal investment or
effort required to maintain the status quo.
Care needs to be taken to spot when the market share falls.
What product is there to take these cash generators place?

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BCG Matrix – Boston Matrix
High Growth / Low Market Share

Often the starting point for most businesses.

Question marks have a potential to gain market share.
When shift from question mark to star is unlikely, consider divesting the question mark and
repositioning its resources more effectively in the remainder of the corporate portfolio.
Question marks must be analysed carefully in order to determine whether they are worth the
investment required to grow market share.

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BCG Matrix – Boston Matrix
High Growth / High Market Share

A graduated Question Mark!

Worth focusing on.
Require funding to fight off competition and maintain growth.
As growth slows become either Cash Cows or Dogs!

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BCG Matrix and Product Lifecycle

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BCG Matrix Example

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BCG Matrix Limitations

• Market Share and Growth can be difficult to define.

• High market share does not always = High Profits.
• Markets can rebound.
• Ignores product relationships.

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