The BCG Matrix also known as the Boston Consulting Group Growth-Share Matrix is a strategic marketing model for assessing product lines for relative market growth and sales volume.
Do you have several products or services that you want to know what their performance is relative to each other and what’s left in terms of market?
Instead of guessing which products to focus on, you can map them out in an orderly fashion and decide which product lines are better stopped and which are worth investing in.
I’m going to show you:
- What the BCG Matrix is
- How to fill in the BCG Matrix
- What you ultimately do with the results of the BCG Matrix
Let’s get started
What is the BCG Matrix?
The BCG Matrix is a strategic marketing model invented by the Boston Consulting Group.
Companies use the BCG Matrix (portfolio analysis) to compare different products or services against each other to determine whether companies should:
- Continue producing
- Stop producing
- Or invest in it
The BCG Matrix helps companies allocate resources in a way that maximizes the following:
- Market share and market growth
- Company growth
- Long-term profitability for each product line
By understanding where products fall in the BCG Matrix, companies can more effectively determine how to allocate resources.
Four quadrants of the BCG Matrix
The BCG Matrix has four quadrants into which products can fall:
In this, it is notable that you often see that products have a certain Product Lifecycle:
1. Question Marks – Construction
Low market share and high market growth.
The “Question Marks” are a product group in which there is a low market share, but where the market is actually showing high growth.
These products are not necessarily very profitable at this time, but have potential to gain market share with the right investments.
It is therefore possible to build a ‘Question Mark’ into a ‘Star’.
Example
If you introduce a new smartwatch to the market, it will be difficult to gain ground, despite the fact that the market is growing rapidly.
This is because large companies already have strong differentiation combined with large market budgets.
2. Stars – Holding
High market share and high market growth.
The ‘Stars’ are a product group with a high market share and a fast growing market.
These products are profitable and it is worthwhile to continue investing in this product group so that they at least maintain their market share and perhaps even continue to grow.
Example
The Apple Smartwatch is an example of a product where Apple has a high market share and the smartwatch market is experiencing strong growth.
3. Cash Cows – Harvesting
High market share and low market growth.
The ‘Cash Cows’ are a product group with a high market share and a market with hardly any growth.
These products are already profitable with little growth potential in the market. The desired strategy here is to invest as little as possible and still maintain the market position.
The revenue generated from a Cash Cow can be invested in Stars or Question Marks.
Example
Rocket ice creams are an example of OLA, a market with relatively low growth where OLA has a large market share.
The money OLA earns from its rocket ice creams they can invest in, for example, alcoholic ice creams in which there is still a lot of market potential.
4. Dogs – Divestment
Low market share and low market growth.
The Dogs are a product group with a low market share and a market that will hardly grow.
These products are loss-making and have no potential to become profitable.
You want to stop investing in a ‘Dog’, because there is nothing more to be gained from it.
Example
Suppose that a new pharmaceutical company starts developing a corona vaccine in 2023, they will find themselves in a market in which they have virtually no market share and there is no market growth to gain that share.
Points of criticism of the BCG Matrix
Besides being a good model for mapping the (potential) performance of your various product lines, the BCG Matrix also has some criticisms:
- Market share does not guarantee profitability.
- Market growth can be influenced by the company (by boosting).
- The matrix leaves out competition.
- Some products are very interdependent in practice.
- Declining / collapsing markets are not taken into account.
- Both axes are assigned the same prioritization, in practice this need not be so and depends on the business strategy.
The model is easy to use, but needs context to ultimately base decisions on it.
BCG Matrix example
Download the BCG Matrix here:
How do you complete the BCG Matrix?
- Identify your products
Start by identifying your own products or services. Which products do you want to include in the portfolio analysis?
- Calculate the total market
To determine your own market share and the market share of your biggest competitor you will need to know how big the total market is.
- Calculate your own market share
Based on the size of the total market, calculate your own market share.
- Calculate the market share of your biggest competitor
Based on the total size of the market, calculate the market share of your competitor so that the relative market share can be calculated.
- Determine the market growth rate
Determine how much the market is going to grow in the coming period.
- Indicate your sales
To fill in the size of the circles you need to indicate how much sales you do per product category.
Taking Apple as an example…
| Name product group | Own market share | Market share largest competitor | Relative market share | Market growth | Revenu in € |
| Macbook | 30% | 20% | 1,5 | 5% | €23.000.000 |
| iPhone | 28% | 35% | 0,8 | 11% | €30.000.000 |
| Apple TV | 12% | 25% | 0,48 | 3% | €6.000.000 |
| Airpods | 25% | 18% | 1,39 | 20% | €18.000.000 |
If we enter that into the BCG Matrix we get the following visualization:
Getting started…
If all goes well, you are now armed with enough knowledge to formulate your portfolio strategy….
Now I want to know from you, what do you think is the most effective method of measuring product performance?
Let me know in a comment.
P.S. should you want additional help please let me know at [email protected]
Frequently Asked Questions
The BCG Matrix, also known as the Boston Consulting Group Growth-Share Matrix, is a model that helps organizations analyze their product portfolios and make resource allocation decisions. The matrix plots strategic business units (SBUs) on a graph to help organizations assess their competitive position in the marketplace and identify potential opportunities.
A BCG portfolio analysis is a way to measure how well a company is performing by looking at its various activities and products. It can help a company decide where to invest its money and which products to stop with.
Market growth is calculated by determining the percentage increase in sales from one year to the next. This figure is then multiplied by the total value of sales from the previous year to determine the market value.
A cash cow is a product or service that generates a large amount of stable, ongoing revenue. A cash cow is usually not the most innovative product or service, but it is reliable and profitable.
The BCG matrix is a strategic marketing model used to help a company decide where to allocate its resources. The matrix is divided into four quadrants:
-Stars: high market share and high growth
-Questrels: high market share but low growth
-Cash Cows: low market share but high growth
-Dogs: low market share and low growth.
An example of how the BCG matrix can be used would be two companies competing in the same industry. Company A has a large market share but is not growing as fast as Company B. Company B has a small market share but is growing fast. In this case, Company A is considered a cash cow and Company B is considered a star.
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This is very good explanation. May Allah increase your knowledge.
Thank you, Kiran!
the example given by your explanation is wrong as you have mentioned as the company A would become the question or questol and the Company B shall become the cash cow
Thank you for the comment! I have adjusted it.
Cash Cows are units with high market share and low market growth, not the other way round.
Thanks for the comment Babatola! Where do you see this mistake?
A cash cow is a product or service that generates a large amount of stable, ongoing revenue. A cash cow is usually not the most innovative product or service, but it is reliable and profitable.
=> I think this one is not right. Please double-check. It generate low revenue.
Thanks for your comment! Why would it generate low revenue? It should have a high market share with low market growth and thus (in general) generate a stable amount of revenue.
I really find this helpful
Thank you, Alinafe!
Thank for helping me ,I have really understood the matrix
Thank you, Deborah!