The Boston Consulting Group in 1968 developed the BCG matrix to understand the growth-share matrix. The BCG matrix is an extremely successful tool for explaining an organization’s growth share. Allan Zakon, BCG’s CEO, and his colleagues designed the growth-share matrix. The founder of BCG addressed the effectiveness of the matrix and its usefulness, Bruce Henderson, in an essay in 1970, which led to its popularity.
Nearly all big organizations across different industries use the BCG matrix, and it is found that nearly all top 500 companies listed on the Fortune implement this matrix for business portfolio and resource management.
Do you know what makes the BCG matrix so effective? How to interpret it, and what are its characteristics? The blog will answer all your queries with detailed explanations and organizational examples.
By definition, the BCG matrix is a high-powered framework for business portfolio management. Businesses can utilize the matrix to determine what is working and what is going against them. The things going against them can be reprioritized by making better decisions through investments and subsidiaries. One can gain crucial information by applying the BCG matrix about an investment, product/service, performance in the market, competitive position, etc. Basis the information, individuals can make better resource allocation, ROI, and strategies. The image below is a representation of the BCG matrix.
It can be seen that the matrix is split into four quadrants and has two referential axes. Market share is represented on the horizontal axis, and growth is indicated on the vertical axis.
We have already provided an overview of the quadrants of the BCG matrix; now, let us explain in detail each of them. Each has unique features, which will be discussed in this section.
Question marks: Products or services growing fast in the market are represented as question marks. But they are neither market leaders nor possess a large share. Application of correct strategies can help get over the competitors and hold a large share of the market. To do that, the business must invest greatly in its resources. Question marks are identical to wild cards; the business may determine whether to exploit or reject the high growth. In case the business chooses to invest, it must aim to take advantage of the high growth and seize major market share. Apple’s Apple TV and Google’s Drive and Workspace are good examples of this quadrant.
Pets: Products neither growing nor above the competition fall into the pet quadrant. They do not bring about much money, and if not looked after, can finish off resources without giving much return. They can lead to losses, so they must be given up quickly. Reduced market share and growth indicate lower profits, which reflects poor quality, high prices, and poor marketing.
Stars: Flagship products with large market share and continuous growth fall into the star quadrant. If the high market share is not maintained, it can become cash cows once the growth slows. Advancing through the competition in all aspects is vital and requires huge investments. Due to the high demand and rising popularity, the flagship product manufacturers have become market leaders. Maximum profits can be generated in this position, but it also requires heavy investments. To remain ahead of the competition, stars need strong support and resources.
Cash cows: Products with a large market share but a saturated market fall into the cash cows quadrant. The products have gone past the competition and delivered huge cash flows. Having a slow market, cash cows handle the most of it and create strong returns. They produce money in bulk as they become the kings of the market. Having a stable market, no major investments are required in this position. Cash flows are strong as profit margins are high. But, innovation is vital to continue huge market share.
Remember that the BCG matrix can only prescribe, not foretell. It informs businesses of the decisions to be taken, where to invest, divest, etc. However, it does not inform them about what might occur. The matrix is inconsiderate towards any swift market changes or major disruptions.
The concept and logic behind the matrix are clear: businesses that are market leaders have more returns. They enjoy huge market share and have a competitive advantage over their rivals, leading to high growth potential. The two key indicators of competitiveness and market attractiveness are relative market share and the growth rate.
Competitiveness: Business competitiveness is the capability of a business to produce more profits compared to its arch-rivals in the market.
Market attractiveness: It is the extent to which a market provides chances for a business to generate profit and maintain itself. The factor is considered contingent on total market share, competition, and growth rate.
Businesses or products that hold huge market share before slowing growth turn into cash cows. To achieve this, it must give higher quality-to-cost rations than its competitors. It can change into a cash cow if it can hold a bigger market share before slowing down.
Practically, growth in any sector will certainly slow down if the market saturates. Companies should set their sights on turning their questions and stars into cash cows. Cash cows’ money can change the question marks into stars and, thus, newer cash cows.
To produce an accurate BCG matrix to ascertain the growth and share in the market, a company needs to conduct careful market research and analyze its products, services, subsidiaries, etc. What is the performance of the product? How is it positioned in the competition? How does the consumer perceive it?
By getting answers to all such questions, the company can begin the work on using the matrix in the following steps.
BCG matrix is handy for a company that wants to take stock and reorganize its business structure. Thorough market research and evaluation of each item discloses the position of each related to others and rivals. The matrix helps to divide, prioritize, and make the best decisions. Look at the BCG matrix application by company giants Apple, Coca-Cola, Google, and Pepsi.
Companies minimize investments in products that have been performing well for many years and have become market leaders. Examples of such companies are the primary soft drinks of Coca-Cola and the iPhone of Apple.
The dynamic nature of the markets and ever-changing consumer preferences make companies apply the BCG matrix. A company must conduct deep market research and revise its BCG matrices regularly.
In this blog section, we have considered two tech giants, Apple and Google, to understand their usage of the BCG matrix.
Star: The flagship of Apple is its iPhone, a rising star. The demand for the product is high among the elite and the rich, and there is no competition for the iPhone in this category. However, the luxury phone category is quite specific, and Samsung regularly develops its products to compete with Apple.
Cash cows: The successor of the Apple Computer, the Apple MacBook is widely recognized and has great sales. In the laptop market, it is considered a leader.
Question marks: There are major competitors in the digital appliances field, including the television. The Apple TV is not recognized as a market leader; it has fewer buyers, and Google Chromecast and Amazon’s Fire Stick are quite competitive in this area.
Pets: In the fiscal year 2022, the iPad, once a popular device, ranked lower compared to 2021. The tablet industry has steadily declined even before the advent of coronavirus in 2020.
Cash cows: Android OS, Google Search, Google Advertising, and Google Chrome control their specific markets. Most of the market share has been consumed by these products of Google, which has driven them to a saturation point. If the products fail, Google Search will keep it as one of the top tech companies.
Stars: YouTube was so far a cash cow and a leader in the online streaming market; however, the advent of Netflix, Disney+, Amazon Prime, etc., increased competition and opportunities for such services. Though the competition has increased, YouTube remains the leader in this industry. Google Assistant is trying to compete with Amazon’s Alexa, Microsoft’s Cortana, and Apple’s Siri.
Question marks: In the digital workspace, Google Drive and Workspace enjoy the growing market’s benefits. However, Slack, Zoom, Dropbox, and Microsoft 365 hold a major market share.
Pets: Google introduced certain new products that did not take off, like Google Plus, Google Video Player, and Google Glass. To give competition to Facebook, Google + was developed, but it led to many questioning the strategies of the tech company.
We hope that the blog was informative and interesting at the same time for our users who are quite new to the framework of the BCG matrix. You can check our sample BCG matrix for other big companies, such as Coca-Cola, Starbucks, Hyundai, General Motors, etc., on our website. The samples can be read and used for free, and in case you are looking for additional help, you can contact our subject matter experts.
What does the BCG matrix represent?
BCG matrix represents business planning and prescriptive portfolio management techniques.
How does the BCG matrix help startups?
The matrix can help the investors of the startups to ascertain the areas for investment and disinvestment.
What is the market growth rate in the BCG matrix?
The market growth rate showcases the percentage of market growth in a particular period.
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