The Boston Consulting Group matrix, or BCG, is a planning tool that was created by the agency of the same name in 1970. It plots a company’s products in a 4 square matrix with the Y-axis showing rate of market growth and the Y-axis showing market share. It is a useful tool for businesses to help them plan what products it should keep, discontinue, or invest further in.
The BCG matrix breaks products down in 4 categories – dogs, cash cows, stars, and question marks. Here’s what each of them mean:
These are products with low market share with a low rate of growth. These products do not generate much cash and they are unlikely to do so in the future. They can, however, tie up company funds. On balance then, these products should be sold off or discontinued.
These products have low growth but have high market share. These tend to be in mature markets (see also, the Product Lifecycle model). While they are not likely to grow any further, they do generate high returns due to their market share. They should therefore be ‘milked’ for as long as possible.
Products with high growth markets with high market share are known as stars. These are the ones that you should invest in more.
Products in high growth markets but with low market share have the opportunity for growth but may consume large amounts of company resources. These products need close monitoring so that you can assess whether to continue to maintain them or to divest.
Remember that products will move around the matrix as time passes. Stars can become cash cows as their markets mature and question marks can easily become either become stars or dogs. Models such as these are really useful for informing your decision making but should be used in conjunction with other planning tools and business data.
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