Every business needs strategic planning to rule in the industry. Therefore, The Boston Consulting Group designed product portfolio matrix (BCG matrix) or growth-share matrix to help business with long-term strategic planning.
BCG Matrix helps business to analyze growth opportunities by reviewing the market growth and market share of products and further help in deciding where to invest, to discontinue or develop products. BCG Model puts each of a firm’s businesses into one of four categories. The categories were all given remarkable names- Cash Cows, Stars, Dogs, and Question Marks.
The four categories are explained below with BCG Matrix diagram:
Let’s understand BCG Matrix in detail with examples:
Question Marks (High Growth, Low Market Share)
These businesses represent a low market share in a high growth industry. As the name suggests, it is difficult to say if these products will become the Stars or drop into the Dogs category. Generally, these products are the startup or new products, which have a good commercial prospect. Therefore, they require a huge amount of investment to gain or maintain market share and to become a Star product. No doubt the market has growth opportunities, but these products have not succeeded to take benefits of these market opportunities to such an extent that they can be recognized as Stars.
Fanta, a Coca-Cola product, is one such example where the business units can be seen as a question mark. As the brand has not been able to gain widespread popularity similar to Coke. Therefore, the brand is losing its popularity. However, in some areas, it has been able to obtain a generous sales volume.
Cash Cows (Low Growth, High Market Share)
Cash Cows category represents businesses having a large market share in a mature, slow-growing industry. Businesses under this category usually follow stability strategies. Further, these firms required little investment and generate cash that can be utilized for investment in other business units. However, when Cash Cows lose their appeal and move towards decline, a retrenchment policy may be followed.
Coca-Cola is one such example of Cash Cows. This product is sold across 200 countries in a mature beverage industry. The bottling partners in different regions help in making the finished beverages available to the market. This is how the organization is earning a significant amount of revenues from its finished products. In a mature industry, it is advisable for a company to keep the sales volume high as the business unit is comparatively a good source to generate revenue.
Stars (High Growth, High Market Share)
Stars are leaders in business. These products have rapid growth and dominant market share. However, they require heavy investment to maintain its position and its large market share. Furthermore, Stars lead to a large amount of cash consumption and cash generation. Therefore, an attempt should make to hold market share and to support further growth, otherwise, a star will become a cash cow.
The bottled water Kinley, a Coca-Cola product, is one such example of Stars. This example is suitable here because the mineral water industry is still viewed as a gradually growing segment on an international scale. The rising population would require more bottled water to fulfill the needs of the people. Due to the rising need for bottled water, the growth opportunities for this business product in the industry has increased. Even though Kinley faces competition from other competitors. Nevertheless, it is essential for the management to understand that the bottled water brands will remain a source of significant sales in future.
Dogs (Low Growth, Low Market Share)
Dogs represent business having a low market share in a low growth market. These firms have low market share due to poor quality, ineffective market, high cost, etc. They neither generate cash nor require a huge amount of cash. Due to low market share, these firms face cost disadvantages. Therefore, in such situation, managers need to decide whether the investment currently being spent on keeping these products alive, could be spent on making something that would be more profitable.
Diet coke, a Coca-Cola product, is on such example of Dogs. It was launched with the motive to offer consumers relatively healthier beverage option in terms of calories consumed. However, the brand has not been able to fetch consumers’ interest, which led to declined sales of this business unit. The soda industry has been matured in recent years; therefore, the growth prospects for new products are limited now.
The BCG model helps in strategic planning, but like any other marketing model, it works in some situation and in others. It helps companies to assess which products need to be promoted to generate revenue and which one needs to be discontinued. In short, BCG Model gives a true picture of how marketing efforts will affect business’s overall cash flow.