The BCG Matrix, developed by Boston Consulting Group (BCG), is a portfolio management tool designed to evaluate a company's products or business units from a strategic perspective. Introduced by Bruce Henderson in 1970, this matrix helps companies analyze their product portfolios to determine which products to invest in, retain, or divest.
This model categorizes products into four groups based on two key variables:
- Market share, which determines competitive strength.
- Market growth rate, which indicates market attractiveness.
By using these two variables, the BCG Matrix allows businesses to position their products or business units and make strategic decisions accordingly.
Categories of the BCG Matrix
The BCG Matrix classifies a company's business units and products into four main categories:
Stars
- Business units with high market share and high market growth rate.
- Require significant investment to gain a competitive advantage and strengthen their position in the market.
- Have the potential to become Cash Cows in the long term by generating steady cash flow.
- Represent the growth phase, where products experience the fastest sales growth.
Cash Cows
- Business units with high market share but low market growth rate.
- Operate in mature markets and provide a stable cash flow.
- The revenue generated is typically used to invest in Question Marks and Stars.
- Represent mature products that generate consistent income.
Question Marks
- Business units with low market share but high market growth rate.
- Have the potential to become Stars, but they carry significant risks.
- Require high investment to become market leaders.
- If they fail to grow, they may fall into the Dogs category.
- Typically represent newly launched products (introduction stage).
Dogs
- Business units with low market share and low market growth rate.
- Have low profit margins and are generally not considered worth investing in.
- These business units should either be divested or maintained at a minimal cost.
- Represent products in the decline phase, where sales decrease and market withdrawal begins.
Strategic Decisions and Resource Allocation
- Invest in Stars to maintain market leadership.
- Use the revenue generated by Cash Cows to fund Question Marks and Stars.
- Carefully analyze Question Marks to determine if they are worth investing in.
- Manage Dogs at minimal cost if retained; otherwise, they should be divested.
